US mulls first green-bond sales to tap a US$2.6 trillion market
THE US Treasury asked an advisory group of securities dealers and investors to assess whether the federal government should start selling green bonds, potentially moving the US closer to joining other nations that have been marketing their debt to funds focused on environmental causes.
The option was raised in the Treasury’s quarterly refunding announcements on Wednesday (May 1) and was part of a broader focus on expanding the potential types of securities sold by the federal government to seize on shifts in demand.
The financing arm of the department suggested several options to the Treasury Borrowing Advisory Committee, an industry group that works closely with the Treasury. Among the proposed new securities were callable bonds, different maturities of floating-rate and inflation-linked bonds, and the green-branded securities.
The US is the only major sovereign-debt issuer in developed markets that hasn’t been selling green bonds, which have swelled into a US$2.6 trillion market. The US Treasury estimated that 17 per cent of green bonds were issued by sovereign governments.
The Treasury said that such a programme would help the government by tapping “a growing investor base which couldn’t invest in traditional US Treasuries”, such as “institutional investors with a target allocation for green investments”. It noted that by the end of 2022, there were over 1,200 investment funds with climate-related mandates globally.
The Treasury said there may be demand for such securities because only 22 per cent of the outstanding green bonds have been issued in the US dollar, versus 49 per cent sold in euros.
In terms of issuance metrics, Treasury noted that sales “of green bonds has been at levels similar to or marginally tighter than traditional bonds from the same issuer and with the same maturity”.
Although demand from investors for green bonds has outpaced supply and resulted in “a small green premium – ‘greenium’,” the Treasury cautioned that “the relative depth and liquidity of green bonds versus traditional bonds might become more of a factor in the future”.
The Treasury said a move to sell green bonds on a regular and predictable basis would “be primarily based on Treasury’s investor base expansion objective, with greenium only being a potential secondary benefit”. BLOOMBERG
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