Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?

By Gong Cheng, Torsten Ehlers, Frank Packer, Yanzhe Xiao

June 14, 2024

Preview Citation

Format: Chicago

Gong Cheng, Torsten Ehlers, Frank Packer, and Yanzhe Xiao. Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for the corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. Yet, our empirical study finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets. Our results suggest that both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut. The results are more pronounced in countries with stronger climate policies. Sovereign green bond issuance also improves the quality of green verification standards in the corporate bond market more generally, consistent with the aim of fostering third-party reviews and promoting best practice in green reporting and verification. Finally, our work provides evidence that the sovereign debut increases liquidity and diminishes yield spreads of corporate green bonds in the same jurisdiction.

Subject: Bond yields, Climate finance, Corporate bonds, Environment, Financial institutions, Financial markets, Securities markets, Sovereign bonds

Keywords: Bond issuance, Bond market development, Bond yields, Climate finance, Corporate bond bond market, Corporate bonds, East Asia, Global, Green bonds, Green verification, Issuance increase, Securities markets, Sovereign bonds, Sovereign debt, Sustainable bond markets, Sustainable bonds, Taxonomies

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/120
Stock No:

WPIEA2024120
ISBN:

9798400277030
ISSN:

1018-5941

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