Bumper demand for German 30-year green bond belies market sell-off

(Reuters) – Germany received nearly 39 billion euros of demand on Tuesday for a 30-year green bond, its finance agency said, attracting strong interest from investors in a subdued market as it builds out its yield curve for environmentally focused debt.

FILE PHOTO: A picture illustration of euro banknotes, April 25, 2014. REUTERS/Dado Ruvic/File Photo

The bond, which will raise 6 billion euros, is Germany’s first green issuance of the year and follows an inaugural 10-year green bond last September and a five-year in November.

Investors hope the growing German curve will serve as a reference point for other borrowers in Europe, where governments have generally focused on a single maturity for green issuance.

The 30-year bond will price at a spread 2 basis points below its conventional twin, the agency said, the biggest green premium Germany has so far secured at issuance, according to Climate Bonds Initiative data.

Germany’s green bonds are all twinned with an otherwise identical conventional bond to allow investors to switch between the two to mitigate any liquidity concerns.

Green bonds usually trade with a lower yield as dedicated funds chase a limited available supply. Germany’s twin structure provides investors with a clear gauge of the green premium, which is often hard to estimate.

Jens Peter Sorensen, chief strategist at Danske Bank, said premiums tends to be higher on longer-dated green bonds given they are rare, being mostly issued by governments rather than companies, which account for the majority of green issuance.

“These are being bought by life insurance and pension funds and there are few alternatives,” Sorensen said.

Germany will raise another 6 billion euros from green bonds this year, through a new 10-year issue to be auctioned in September and re-opened in October.


Demand for the deal topped the 33 billion euro order book for last year’s inaugural 10-year green bond and was the highest ever for a syndicated German government bond.

It is still less than half of the 80 billion euros for a 24-year Italian green bond in March, and German debt sales tend to see lower demand because of the negative yields on offer.

Germany ramped up demand despite a bond sell-off that on Tuesday sent the 10-year yield back up to last week’s 14-month high at -0.162%.

Bonds sold off alongside equities ahead of Wednesday’s U.S. inflation reading, which investors will gauge for a possible change of stance from the Federal Reserve.

A market gauge of long-term euro zone inflation expectations, the five-year, five-year forward, rose above 1.60%, its highest since December 2018 after a German investor morale survey far exceeded expectations.

“European bonds are far more expensive than U.S. ones and hence more sensitive to a risk reduction,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

The German supply, which will be followed by a $58 billion auction of three-year U.S. Treasuries, may also weigh on the market.

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