An Analysis of the Rates and Variables Affecting Them in the European Corporate Green Bond Market

Alesya Rania^*
*Correspondence: Alesya Rania, Department of Finance, HSE University, Pokrovsky Boulevard Moscow, Russia, Email:

Keywords

Green bonds • Greenium • Yield determinants • European green market

Introduction

Encompassing the regional markets of Germany, France, the Netherlands, and the United Kingdom. The sample comprised 3851 corporate bonds from 33 European nations between 2007 and 2021, including green and conventional. The analysis utilised linear regression. The findings indicate that European corporate bonds for the environment are less expensive than conventional corporate bonds with comparable risks. Around 3 bps is the greenium magnitude. The existence of an ESG rating as well as membership in the utility and finance industries are factors that affect greenium. The other factors that affect bond rates in the European corporate debt market include credit quality (represented by the credit rating level), coupon size, bond tenure, market liquidity, and macroeconomic factors.

Literature Review

The idea of a "geranium," or negative premium to the yield of green bonds, has been revealed by researchers and practitioners who study and work in the green bond market (Harrison 2022). Geranium results in a lower yield for the purchaser but enables issuers of such bonds to get a cheaper interest rate for the issuer of green debt instruments (Bachelet et al. Mikhailovich 2020; Prelaw and Bashir 2015; Governmental organisations and businesses have a lot to gain from issuing more climate-related bonds thanks to the geranium. According to MacAskill et alfin dings.’s from the year 2021, for governmentissued or investment-grade green bonds, geranium was found in 56% of main and 70% of secondary market research. The publications examining the nature.

The characteristics of geranium encapsulated the factors that influence yield discounts, including investor preferences and excess demand versus supply in the green market segment liquidity level the presence of government incentives and tax breaks the state of the economy macroeconomic indicators0020and the awarding of green labels and certification. Individual bond and green project characteristics, as well as official certification that the projects adhere to the Green Bond Principles or other requirements, are also taken into consideration.

Discussion

The existence of geranium is the most significant aspect of green bonds for both investors and issuers. In a condition known as "Geranium," green bonds sell for more money than traditional ones (thus commanding a lower yield for the buyer). The two most frequently reported sources of geranium are either businesses that adhere to the "green agenda" lower their existential risk and danger of ultimate bond default, investors are ready to forgo income in order to satisfy the concerns of stakeholders But given that bonds with the same characteristics including credit risk should have the same yields, the question of whether a negative premium is sustainable emerges .The response to this query can aid in forecasting the future.

Raga changes in the markets for green bonds. This is due to the fact that the results in a cheaper cost of capital for the issuers and, as a result, a greater likelihood of investment opportunities. As a result, the businesses will issue more green bonds, causing the market for them to expand quickly. On the other hand, growth will be stopped by geranium evaporation. Looking ahead, the investigation of these phenomena is important given that the existence of a geranium is a question that cannot be answered with certainty. Researchers looking at these markets must take into account their variations. The discrepancies are caused by variations in size, the make-up of investors and borrowers, supply and demand, issuer credit quality, and regulatory and tax frameworks. For instance, the conventional corporate bond market in the USA is bigger than the market in Europe in absolute and relative size. Due to its smaller size and bondholders' desire to retain their notes until maturity, the European Union corporate debt market has less liquidity. In terms of credit ratings, the US corporate debt market is less varied than the European market. This is because several sovereigns in Europe have lower ratings than the US, which has a sovereign rating [1-5].

Conclusion

This essay examines the existence and contributing factors of green bonds on the market for corporate bonds in Europe. In order to achieve this, we used a linear regression model to analyse a sample of 3852 traditional and green bonds from 33 nations between the time frame under consideration spans the full history of green bonds in Europe, beginning with their initial issuance. The findings indicated that there was a 3-3.6 bps statistically significant negative green premium across the board in the European market. Our findings are debatable for the regional corporate loan markets. We did not uncover any sustainable evidence of geranium in any of the markets we were considering, with the exception of the UK and the Netherlands. More research should be done.

Acknowledgement

None.

Conflict of Interest

There are no conflicts of interest by author.

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