Dynamic impact of the US yield curve on green bonds: Navigating through recent crises

Zaghum Umar, Najaf Iqbal, Tamara Teplova and Duojiao Tan

The North American Journal of Economics and Finance, 2024, vol. 74, issue C

Abstract: We examine the effect of the US yield curve on the global green bond markets at the forefront of the climate change fight. For this purpose, we compute three components (level, slope, and curvature) of the US yield curve based on daily data of the treasury yields with several maturities from January 2009 to June 2022 and employ country-level S&P green bond indices. Our dynamic network analysis shows that the level component of the yield curve is more influential in transmitting return and volatility shocks to green bonds, while curvature is primarily absorptive. The European, the US, and Hong Kong green bonds are the leading players in shock propagation. Both return- and volatility spillovers are time-varying and remain high during periods of systemically important events, especially COVID-19 and the Russia-Ukraine war, supporting the Global Financial Cycle Hypothesis. The war also changes the net behaviors (transmitter versus receiver) of the components and the indices. Investors and issuers of green bonds are advised to keenly observe the shape of the US yield curve and systemic events for better decision-making regarding investment horizons and contagion risk management.

Keywords: Green bonds; Term structure of the US yield curve; Return and volatility transmission; Russia-Ukraine war (search for similar items in EconPapers)
JEL-codes: E43 G01 G11 G12 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001487

DOI: 10.1016/j.najef.2024.102223

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