scorecardresearchSovereign green bond premium ‘greenium’ narrows: Report

Sovereign green bond premium ‘greenium’ narrows: Report

Updated: 10 Feb 2023, 10:47 AM IST
TL;DR.

The premium of the green bonds relative to the regular bonds of comparable maturity stands at 2 basis points and 4 basis points, for the five-year and ten-year papers, respectively.

The government has just concluded the  <span class='webrupee'>₹</span>16,000 crore worth of green bond issuances that were earmarked for the current financial year.

The government has just concluded the 16,000 crore worth of green bond issuances that were earmarked for the current financial year.

The second sale of the sovereign green bonds witnessed its premium getting narrowed as compared to regular government bonds amid weak market sentiment following the Reserve Bank of India’s (RBI) policy statement, reported Business Standard.

The government on Thursday sold 8,000 crore worth of two green bonds — 4,000 crore of a five-year green bond and 4,000 crore of a 10-year green bond.

The government has just concluded the 16,000 crore worth of green bond issuances that were earmarked for the current financial year.

The cut-off yield for the five-year green bond was set at 7.23 per cent while that for the 10-year green bond was set at 7.30 per cent. On Thursday, yield on the most liquid five-year bond closed at 7.25 per cent while the 10-year benchmark bond closed at 7.34 per cent.

The premium of the green bonds relative to the regular bonds of comparable maturity stands at 2 basis points and 4 basis points, for the five-year and ten-year papers, respectively.

This is a narrower premium – or pricing advantage for the government — than that which emerged after the maiden auction of green bonds on January 25.

The premium that the two green bonds commanded, relative to the regular bonds at that auction, was 5-6 basis points. Globally, green bond are issued at a premium as the instrument is meant to facilitate access to cheaper capital for environment friendly projects.

Bond yields rose across the board but the increase in yields was sharper for short-term securities, which are more sensitive to interest rate expectations. Yield on the most liquid five-year bond rose seven basis points, surpassing the three-basis-point rise in the 10- year bond yield. This has led to a flatter sovereign bond yield curve.
 

First Published: 10 Feb 2023, 10:47 AM IST