Germany proves ‘greenium’ theory with green bond demand

Germany government's first ever green bond issuance attracted as much as €33bn in orders

Germany’s first step in creating a “European green curve” proved popular earlier this month with €33bn in orders on its first ever green bond issuance.

The German Treasury closed a final book size of €5.6bn following the €33bn bids for the 10-year debt, as it looks to nourish the appetite for green bonds which has exploded in recent years.

A total of $263bn of this type of debt was sold last year, up from less than $1bn a decade ago, according to figures from Moody’s, while year-to-date to 27 May green bond market issuance had hit  $69.3bn.

France, Poland, Ireland and the Netherlands have all issued green bonds ahead of Germany’s first foray last week, and European leaders including German chancellor Angela Merkel and president of the European Central Bank (ECB) Christine Lagarde have emphasised that  green objectives should be at the heart of the funding for the Covid-19 recovery.

See also: – German green bonds: A game-changer for transparency

On 24 August, the German government confirmed plans to issue its first green bond to fund cleantech and energy projects, and support the country’s sustainable finance programme.

Deputy finance minister Joerg Kukies said in an announcement at the time: “From now on, the German government will issue green federal bonds every year. In this way, we are creating strong momentum towards a more robust sustainable finance market,” Kukies said.

“Our innovative twin bond approach is designed to attract new investors and issuers to the green bond market and thus act as a catalyst, channelling more investments into a greener economy.”

 Jesús Martinez, portfolio manager at Aegon Asset Management, said Germany has proven the “greenium” theory with the demand for its first green bond.

“The Germany government’s first ever green bond issuance attracted a large set of investors, with as much as €33bn in orders, for a final book size of €6.5bn.

“While the size of the issuance itself was remarkable, Germany also tested the existence of the so called “greenium” – the extra spread that investors would be willing to pay for green bonds versus regular bonds. For this purpose, the bond shared the characteristics of an existing regular German bond, both in coupon and maturity.

“Although the initial pricing was set as flat versus its twin bond, the amount of interest among investors allowed for a basis point downward review in the bond’s spread. Germany is expected to issue another green bond in the coming months in its ambition to build an European green curve.”

Aegon AM participated in the issuance.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...