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Green no longer means go

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Once practically guaranteed, demand for green bonds is becoming fickle

Green bonds had a rough time in several sectors of the market this week, underlining that issuers can no longer expect an easy ride just because they’re green.

It is rare for green bond sales to be abysmal. Demand has far outstripped supply for years, so issuers usually find buyers receptive.

But this week has shown that the green bond market is fallible. Germany’s 10 year green bond auction failed to get fully covered, with just 59% of the tap bought.

The Finanzagentur is reducing its use of syndicated issues, with a maximum of one expected next year, so banks are less inclined to over-bid at auctions to secure mandates. Even the green label was not enough to pep up demand.

The closed world of sovereign bond auctions might not be the best barometer for how well green demand is doing, but there were some howlers this week in the syndicated markets too.

Triodos Bank had a stressful outing at the start of the week with its debut bond issue — a green tier two capital note. The Dutch bank had held a roadshow, so the leads had a clear sense of demand before opening the books. The issuer is as dark green as can be — it only provides green or social lending.

None of that made any difference. Triodos had to abandon its deal after setting final terms, as a shift in yield curves had weakened investor sentiment.

Corporate issuers fared better, but green bankers say they are telling companies not to expect greeniums to exist forever.

Limp demand for Korea Housing Finance Corp’s social bond this week suggests that other ESG structures are not enough to ensure bulging orderbooks, either.

There was a time when a green label was an automatic ticket to strong demand. Those days are over.

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