The debut of the European Union (EU) on the market for green bonds was very successful on Tuesday: On the one hand, as an issuer, it set new standards for debt instruments that serve ecological and sustainable goals.

On the other hand, the renewed high level of interest shown by investors in the issue shows that the EU is very welcome on the bond market.

The first green EU bond has a term of 15 years and, with a volume of 12 billion euros, is the largest security in this category to date.

Markus Frühauf

Editor in business.

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As with the first EU bonds last year, which were aimed at social purposes in the wake of the Corona crisis, investors literally rushed to the issue: the demand of a good 135 billion euros was more than ten times the supply . The EU exceeded the record demand for a green bond set by Great Britain last month. At that time, the British Treasury had registered orders of more than £ 100 billion (equivalent to just under 118 billion euros) with an issue of over £ 10 billion. With its debut on the green bond market, the EU did not succeed in setting a record demand across all bond categories. But she can comfort herself with the fact that she set this record herself last year with 145 billion euros.

More favorable financing conditions

The high demand for the green bond put pressure on the financing conditions. If the high demand for a bond leads to rising prices, then the yield, i.e. the interest rate demanded by the investors, falls. While the EU had originally aimed for a reduction of 0.05 percentage points or five basis points from the reference interest rate (swap in mid-15 years), in the end it was even eight basis points less. That corresponds to a return of 0.44 percent. A comparable federal bond due in early 2037, on the other hand, has a yield of just 0.02 percent. The yield advantage over the predominantly negative interest federal bonds is an important reason why many investors appreciate the new EU bonds. These also have a very high credit rating.There are no doubts about the timely interest payments and repayments by the EU.

This wants to raise a total of 800 billion euros by the end of 2026 to finance the reconstruction fund decided upon during the Corona crisis. 30 percent or around 250 billion euros are to be covered by green bonds. The EU is preparing to become the largest green bond issuer in the world. Since many institutional investors are now obliged to invest more funds in sustainably designed securities, the demand for green investment products is growing steadily. The EU is also making a contribution by finally adopting its criteria for sustainable financial products, the so-called taxonomy, by the end of the year. However, it has not yet been clarified whether France can assert itself with its demand to classify nuclear power as a transition technology.

The German state has also been relying on green bonds since last year. So far, he has raised a total of 21 billion euros in terms of five, ten and 30 years. This month, a further 3 billion euros are to be added via the increase in the new green ten-year bond. The federal government is pursuing the concept of twin bonds; there is a conventional twin bond for every green bond. Due to the same maturity, the interest rate advantage of the green securities can be precisely determined. The green premium is known on the market as the “Greenium”. With a yield of minus 0.67 percent, the five-year green federal bond is six basis points below the conventional twin. In the ten-year term, the green stock has a yield of minus 0.18 percent, which is four basis points lower.With a yield of 0.29 percent, the 30-year green bond currently has an interest rate advantage of five basis points.