May 5, 2015
Impact Investing : Focus in Financial Planning and Green Bonds
Since June 2014 there have been 18 green bond offerings totaling $2.9 billion dollars. This appears to be a trend in the financial world, in which impact investing has become a strong focus in financial planning and Green Bonds are flourishing. What should one know about green bonds? Are there tax exemptions, and are there specific perimeters you should be aware of? Benji Bailey and Delmar King, of Everence Financial, are pioneers in this new bond market and can explain the ins and outs of Green Bonds.
And the secondary-market performance of green bonds, which typically fund environmentally sustainable projects, assumes outsized importance as two sizable green bond issuances are hitting the market this week. California included $200 million of green bonds in its almost-$2.1 billion general obligation deal on Tuesday.
JP Morgan, Barclays Capital and Morgan Stanley also were lead book runners on $370 million taxable green bonds for Massachusetts Institute of Technology as part of a $522.4 million total taxable bond deal for the university of Monday, according to Luke Hale, executive director on the syndicate desk in Morgan Stanley’s municipal securities group. This is the first higher education green bond issuance to come to market, according to Hale.
The deals are expected to sell well, because issuance of the securities has been limited, while demand among the buy-and-hold investors who typically buy them has surged.
And also there’s pent up demand, a growing demand for that type of bond,” Michael Schroeder, president and chief investment officer at Wasmer, Schroeder & Company, said in an interview. “The supply of [green bonds] while increasing versus two to three years ago, it’s not increasing fast enough to meet that kind of demand.
On the New York State Environmental Sales Corp.’s green bonds, spreads are more varied. A sample of six of the most actively traded bonds from the issue show that two of the bonds’ spreads to the benchmark MMD scale have widened from their first to last trading, while two have tightened and two showed mixed results.
The 3.5s of 2034 from the deal’s spread has tightened 24 basis points to the MMD scale from the bonds’ first day of trading to when the 3.5s in 2034s were last traded on August 5, and the 5s of 2014’s spreads also came in from 21 to 12 basis points when they were last traded on Aug. 27.
However, the deal’s 5s of 2029 spread widened from 29 to 30 basis points as of their last day of trading on Aug. 8, and the 5s of 2025’s spread widened by 12 basis points as of their last trading day on Sept. 11.
The spread on 2s of 2022 widened on their last trading day Sept. 17 from their highest traded yield to the benchmark scale by 11 basis points, and tightened by 13 basis points from the lowest traded yield to the scale. Spreads on 4s of 2014 when they were last traded on July 7 widened one basis point from their highest traded yield to the MMD scale, and tightened by 11 basis points from their lowest traded yield to the scale.
Most recently bonds with long maturities from Massachusetts’ green bond sale last week on Sept. 18 were priced with yields lower than the MMD scale. The 5s of 2033 the deal’s longest maturity yielded 2.74%, a spread of four basis points below MMD. The 5s in 2030 from the deal were priced at 2.68%, also four basis points below the benchmark scale.
And also the performance of the bonds in the secondary are important because the investors who purchase the green bonds are typically buy and hold investors, and unlikely to trade or flip the bonds in the secondary.
Mr.Daley said the Massachusetts green bonds sold in 2013 have not traded much in the secondary market.
“There are several reasons for this including the fact that they are highly rated GO bonds, which tend to attract buy-and-hold investors, while green bond investors in general are in same category, looking to buy and hold,” he said.
And he also said there was a lot of retail interest in the state’s Sept. 18 green bond deal.
There were $260 million of retail orders in aggregate from individual and professional retail buyers,” he said.
Hale said the retail demand was stronger than other recent Commonwealth sales due to the green bond nature of the sale.