Green bonds market blooming, says Moody’s

Global green bond issuance in the second quarter of 2016 reached a new quarterly high of US$20.3bn – well above the US$16.9bn recorded in Q1 – and resulting in a total for the first six months of the year of US$37.2bn, up 89% from US$19.7bn for the first half of 2015, reports Moody’s Investors Service.

“The global green bond market is now poised to reach US$75bn in total volume for 2016 and so set a new record for the fifth consecutive year, given the strong issuance already observable in the first two weeks of Q3,” said Henry Shilling, a Moody’s senior vice president.

“At the time of our Q1 report, we had thought that the market could potentially reach US$70bn, well above last year’s record of US$42.4bn.

“Issuance during Q2 also exhibited a more balanced profile as to issuers, sectors and countries of origin when compared with Q1, when China, due to issuance by its financial institutions, accounted for 46.7% of volume. During Q2, the US led – helped by municipal sector activity – with 22.8% of issuance, followed by supranationals and development banks at 16.7%, and the Netherlands at 14.3%.”

Moody’s just-released report on green bond issuance in Q2 2016, entitled ‘Green Bonds – Global: Record Quarterly Issuance Achieved in Q2 2016; Market Poised to Reach $75 billion,’ shows that during Q2, the number of issuers and transactions also increased, with 54 distinct issuers offering a total of 81 transactions, while average transaction size fell to about US$250m per tranche.

Almost two thirds of Q2 green bond proceeds were once again earmarked for renewable energy and energy efficiency projects, with approximately 61% of issuance by total dollar volume allocated to these two categories. The clean transportation category emerged as the third most popular in the first half.

Aaa-rated transactions continued to dominate in Q2, but issuances also spanned the investment grade spectrum. Based on Moody’s ratings, 97% carried investment grade ratings while 43% were rated Aaa. The one speculative grade green bond was a US$500m, Ba1-rated Banco Nacional de Costa Rica deal to finance renewable energy and clean water projects.

The credit ratings agency (CRA) also notes that the performances of the broad bond market and green bonds diverged in Q2 but both continued to generate strong total returns. The bond market in aggregate and the much smaller green bond market produced strong total return returns of 2.5% and 1.7%, respectively.

During the quarter, Moody’s also assigned three Green Bond Assessments (GBAs) – its first application of this approach – to residential mortgage backed securities (RMBS), as well as corporate and municipal transactions that came to market and raised about US$1.8bn.

GBA is a methodology employed by the CRA that aims to provide an evaluation of a bond issuer’s management, administration, allocation of proceeds to and reporting on environmental projects financed with the proceeds derived from green bond offerings.


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Mark Carney Bank of England