Points of the issue value though the cbi also

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points of the issue value (though the CBI also requires the external engagement of a party that verifies Credit spreads at issuance of green versus non-green bonds 1 In basis points Graph 3 Individual green bond issues by currency denomination Average yield at issuance premia by rating 1 Relative differences in credit spreads at issuance compared with a non-green bond of the same issuer at the closest possible date. The average closest date of a non-green bond issue by the same issuer is around seven days before the issue date of the green bond. Sample was restricted to pari passu bonds of at least two-year maturity at issuance, at least $10 million issuance amount and currency of denomination being either euros or US dollars. Credit spreads are calculated as the spreads of yields at issuance over the yield curve of US Treasury securities (for US dollar- denominated bonds) and German Federal Treasury securities (for euro-denominated bonds) of the same maturity at issuance date; if the same maturity was not available, the available points of the respective yield curve were interpolated. Sources: Board of Governors of the Federal Reserve System; Deutsche Bundesbank; Bloomberg; authors’ calculations. 20 0 –20 –40 –60 –80 2017 2016 2015 2014 Average = –18 bp US dollar Euro 0 –10 –20 –30 –40 –50 A to BBB AA AAA
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98 BIS Quarterly Review, September 2017 demand for green bonds (CBI (2017), OECD (2016)) relative to supply – in other words, enough investors have a preference for holding green bonds to influence the issue price. When we segment the sample by rating category, it appears that the green yield difference is greater for riskier borrowers (Graph 3, right-hand panel). Recall that we compare credit spreads at issuance of pari passu bonds from the same issuer, so this result does not reflect differences in credit risk (or other factors) across issuers within the same rating category. Again, this finding is consistent with previous work (Zerbib (2017)). At the same time, we also document considerable variation across the individual green bond issues in our sample (Graph 3, left-hand panel). The standard deviation of the premium is 27 basis points. Not all issuers were able to take advantage of a yield discount at issuance: five out of the 21 green bond issues priced at spreads above the matched conventional bonds. We also could not document yield premia for higher levels of greenness as determined by the more granular assessments of the major rating agencies. 10 Financial performance over time Returns to investors from green bonds will reflect their performance over time, in particular when investors do not intend to simply hold them until maturity. The average premium at issuance will not necessarily translate into a noticeable underperformance in secondary market trading. Investors in the secondary market may well price in a different premium from primary market investors. 11 Many investors will also be interested in the realised volatility of green bonds as a metric of financial performance.
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