Germany is making its way to a green bond revolution in Europe by announcing that it will issue government securities of this nature later this year.
The economic crisis caused by the pandemic is creating a need for loans that has never been seen before, especially in Europe. Investors turn en masse to assets that meet the EU’s environmental or social goals.
The green nature of the recovery budget was proposed by both Chancellor Angela Merkel’s government and the EU.
Poland was the first country in 2016 to switch to debt, which directly finances environmental projects. Germany’s status as the safest borrower in the region is a major boon to the global green bond market, which is growing to $ 68 billion.
“The EU’s green deal could open the door to many interesting projects that need funding,” said Ronald van Steinwegen, manager at Degroof Petercam Asset Management.
Germany has announced it will start selling 10-year bonds in September, most likely followed by 5-year bonds in the fourth quarter.
It will continue in 2021 with additional sales of bonds with different maturities – from 2-year to 30-year government securities, said Tamo Diemer of the Federal Finance Agency. The goal is to build an overall yield curve in the coming years.
France, followed by the Netherlands and Belgium, are the largest issuers of green bonds. Italy and Poland are planning sales, and Austria, Spain and Sweden are considering joining for the first time.
For Germany, as Europe’s leading economy, the risks are slim. It can borrow money for free for 30 years thanks to its long-standing policy of maintaining a budget surplus, controlling the amount of debt available to investors. The country’s reputation as an asylum and the ECB’s quantitative easing program continue to attract investors.
The 130 billion-euro budget, presented earlier this month for economic recovery, was identified as the best and most supportive of environmental initiatives such as electric car production, public transport and renewable energy. The EU aims to achieve climate neutrality in 2050, while measures on the European Recovery Fund may include the maintenance of a common debt by EU member states.
“Green German bonds are likely to be considered the lowest risk asset in European fixed income markets,” said Peter Chatwell of Mizuho International, adding: “The risk-free asset is simply becoming even riskier. That’s a big deal.
Junior Trader Daniel Dimitrov