Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?

Gong Cheng, Torsten Ehlers, Frank Packer and Yanzhe Xiao

No 2024/120, IMF Working Papers from International Monetary Fund

Abstract: In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for the corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. Yet, our empirical study finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets. Our results suggest that both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut. The results are more pronounced in countries with stronger climate policies. Sovereign green bond issuance also improves the quality of green verification standards in the corporate bond market more generally, consistent with the aim of fostering third-party reviews and promoting best practice in green reporting and verification. Finally, our work provides evidence that the sovereign debut increases liquidity and diminishes yield spreads of corporate green bonds in the same jurisdiction.

Keywords: Green bonds; sustainable bonds; sovereign debt; taxonomies; green verification; bond market development; bond issuance; corporate bond bond market; issuance increase; sustainable bond markets; Climate finance; Corporate bonds; Sovereign bonds; Securities markets; Bond yields; Global; East Asia (search for similar items in EconPapers)
Pages: 29
Date: 2024-06-14
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Sovereign green bonds: a catalyst for sustainable debt market development? (2024)
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