What’s big, green and keeps traders busy?

Dan Barnes
2344

Bond issuance sizes in the ESG space are growing, and the average size of the deals are growing too. The proportion of benchmark-sized deals – measured by the Climate Bond Initiative (CBI) as over US$500 million – globally in the past year increased to 64% of the total, up from 56% in 2017, while the total volume of issuance has nearly doubled in that period from US$156.9 billion to US$290.1 billion.

That puts the deals at benchmark size up from US$87.9 billion in 2017 to US$185.6 billion in 2020, which in one sense is good news. As deals become concentrated the frequency with which buy-side traders repeat the processes involved in getting allocations reduces.

Primary markets are a key source of fixed income assets with many buy-and-hold funds in the green space hoovering up new issues as soon as they come to market. The composition of issuers is changing significantly year-on-year, with volume of bonds issued by non-financial corporates doubling between 2018 and 2019, then government-backed green bond issuance doubling between 2019 and 2020.

In 2021 the level of issuance has already reached US$230 billion by 23rd July, according to CBI data and although investment manager NNIP has predicted this year would see new issues of US$300 billion, it seems clear that level could be surpassed. Fund managers are also seeing continued appetite amongst investors, creating a tension between available supply and demand. In secondary markets voluems have also grown, with MarketAxess reporting US$13 billion worth of green bonds traded in Q2 2021, up from US$6 billion in Q2 2020.

The one market in which issuance will be more of a concern is the US, which has an outsized number of bond issues to the value being raised. If primary markets platforms prove a success this year in the North American market that may ease some of the pressure on buy-side desks.

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