Spain joins the green bond party

The Kingdom of Spain, using its full name, announced the launch of a 20-year green bond this week. We think it will take place tomorrow.

The deal comes hot on the heels of Italy launching its first green bond in March this year (with a 24-year maturity), while France added a second green bond to its curve a couple of weeks later (with a 23-year maturity), and Germany brought its third green bond selling in May with a 30-year maturity.

Long-dated maturities are no doubt a reflection of better investor demand for the sector

It should be clear by now that sovereign borrowers have a strong preference to sell green bonds with long maturities (the one exception is Germany launching a new 10Y green bond on Wednesday). This is no coincidence.

In addition to being a better match for long-term uses of proceeds by the borrowers, long-dated maturities are no doubt a reflection of better investor demand for the sector. In short, we have no concern about maturity concentration here.

The deal will also pave the way for other would-be first-time green bond issuers. Indeed, the United Kingdom is also preparing its inaugural green bond sale later this month, and we expect the EU to launch its first green issue this year too.

We have written a comprehensive assessment of how green bonds trade relative to their non-green peers earlier this year, and the Spanish deal will add another data point to our analysis.

Judging from its two closest peers, Italy and France, we reckon the new Spanish green bond should trade with a yield roughly 3 basis points below what a non-green Spanish bond would trade. This is based on the median greenium of 3.5bp on the French curve and of 4.5bp on the Italian curve.

The deal’s €5bn size is no surprise in light of Spain’s lower funding requirements, but it will ensure that demand far outweighs supply. For comparison, Italy’s green bond launch back in March drew demand of €80bn for a deal size of €8.5bn.