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 De Ridder (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 De Ridder (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 is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. 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 member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and advisory board of Elcano.

Guntram 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 worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media.