Working paper

Greeniums in sovereign bond markets

In this paper, we analyse whether green sovereign bonds are systematically priced differently to conventional sovereign bonds in the secondary markets

Publishing date: 29 September 2022
Authors: Monika Grzegorczyk Guntram B. Wolff

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Summary

The total market value of green bonds exceeded half a trillion dollars in 2021 and will increase to $1 trillion by the end of 2022. The growing European green sovereign bond market has a value of close to €147 billion at issuance. We study whether investors price green sovereign bonds differently to normal sovereign bonds. We do not expect to find a so-called ‘greenium’: the promise attached to green sovereign bonds is rather loosely defined and green and normal sovereign bonds are both backed by the full faith and credit of their respective governments. However, when systematically matching green and normal sovereign bonds using a number of criteria, including date of issuance and maturity, a small greenium can be measured. More research is needed to understand why rational investors do not arbitrage away this greenium.

About the authors

Monika Grzegorczyk

Monika worked at Bruegel as a Research Analyst until August 2022. Monika is completing her second master’s degree in Models and Methods of Quantitative Economics at Paris 1 Pantheon Sorbonne and UCLouvain. She holds a BSc in finance and a MA in Political Science. Her research interests include monetary policy, financial regulations, and structural reforms.

Prior to Bruegel, Monika worked as a Junior Economist at OECD on the qualitative and quantitative assessment of the implementation of structural policies and recommended actions. She was able to apply new machine learning methods such as Natural Language Processing for textual analysis.

Monika was a trainee at governmental bodies (the Polish Finance Ministry, Ministry of the Interior and Administration, and the Polish delegation to OECD) and worked for non-governmental organisation (Foundation Institute for Strategic Studies). She also gained her experience through research assistance at the Paris School of Economics on Macroeconomic imbalances procedure (published as European Parliament Study).
Guntram B. Wolff

Guntram Wolff was the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

A recognized thought leader and academic, he regularly testifies at the European Finance Ministers' ECOFIN meeting, the European Parliament, the German Parliament (Bundestag) and the French Parliament (Assemblée Nationale). From 2012-16, he was a member of the French prime minister's Conseil d'Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed to the G20 high level independent panel on pandemic prevention, preparedness and response. He is also a professor (part-time) at the Solvay Brussels School of Université Libre de Bruxelles, where he teaches economics of European integration.

He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he was coordinating the research team on fiscal policy at Deutsche Bundesbank. He also worked as an external adviser to the International Monetary Fund.

He holds a PhD in economics from the University of Bonn and studied in Bonn, Toulouse, Pittsburgh and Passau. He taught economics at the University of Pittsburgh and at Université libre de Bruxelles. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media and policy outlets. Guntram is fluent in German, English, French and has good notions of Bulgarian and Spanish.