Sustainable bond sales saw the busiest January on record, with lower borrowing costs igniting a deal blitz as top underwriters of the debt lined up more sales.
Global sales of green, social, sustainability and sustainability-linked bonds totaled $149.5 billion last month, making it the most active January since the inception of the green debt market in 2007, according to data compiled by Bloomberg.
Falling borrowing costs and seemingly insatiable investor demand have turbo-charged issuance in bond markets across the globe. More than 540 bond sellers tapped primary markets last month — the most in records going back two decades — to raise a record $721 billion in both ESG-labeled and conventional bonds as of Jan. 26, ending the month at over $817 billion, according to Bloomberg-compiled data. In the US, the high-grade market had the busiest January ever.
Issuers that were reluctant last year as the Federal Reserve hiked interest rates are now jumping in to capitalize on the favorable funding environment, according to Scott Krohn, senior vice president and treasurer at Verizon Communications Inc. The largest phone carrier in the US has issued $1 billion in green debt every year from 2019 to 2023.
“We now know what the Fed is probably going to do on the front end,” said Krohn in an interview. “The question is pace and timing. There’s even more cuts priced into 2025.”
Governments and development banks dominated sales last month. Top underwriters of the bonds, BNP Paribas and Bank of America Corp., expect the issuance calendar to remain robust at least in the short term. Top issuers last month included France, the World Bank Group and the European Investment Bank. Meanwhile, Qatar is ready to sell its first green bond — and first external deal of any kind in four years — soon.
“We do think the start of the year will remain very active,” said Anne van Riel, BNP’s head of sustainable finance capital markets for the Americas.
France, the top sovereign seller of green bonds, pulled in record investor orders for its €8 billion ($8.6 billion) green deal.
“Investor demand for sustainable bonds remains strong and we expect that to continue, even as we anticipate more activity in near term,” said Andrew Karp, head of the sustainable banking solutions group at Bank of America.
Sales of green bonds, the largest category of sustainable debt by amount, totaled $84.2 billion, a record for the month of January. Issuance of sustainability bonds, which can be used to fund both green and social projects, reached $32.4 billion, also a record for the month. Sustainability-linked bonds — or SLB — sales, meanwhile, totaled just $3.7 billion.
The market is starting to differentiate between the use-of-proceeds bonds that are used to fund specific green or social projects and SLBs, which can be used for anything, including everyday operations, said Verizon’s Krohn.
“The market prefers use-of-proceeds bonds because you can then tie it back to actually having an impact” he said. “There’s going to continue to be demand, especially for the use of proceeds bonds.”
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