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Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?

Author

Listed:
  • Gong Cheng
  • Torsten Ehlers
  • Frank Packer
  • Yanzhe Xiao

Abstract

In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for the corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. Yet, our empirical study finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets. Our results suggest that both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut. The results are more pronounced in countries with stronger climate policies. Sovereign green bond issuance also improves the quality of green verification standards in the corporate bond market more generally, consistent with the aim of fostering third-party reviews and promoting best practice in green reporting and verification. Finally, our work provides evidence that the sovereign debut increases liquidity and diminishes yield spreads of corporate green bonds in the same jurisdiction.

Suggested Citation

  • Gong Cheng & Torsten Ehlers & Frank Packer & Yanzhe Xiao, 2024. "Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?," IMF Working Papers 2024/120, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/120
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    References listed on IDEAS

    as
    1. Mr. Sakai Ando & Mr. Chenxu Fu & Mr. Francisco Roch & Ursula Wiriadinata, 2023. "How Large is the Sovereign Greenium?," IMF Working Papers 2023/080, International Monetary Fund.
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    More about this item

    Keywords

    Green bonds; sustainable bonds; sovereign debt; taxonomies; green verification; bond market development; bond issuance; corporate bond bond market; issuance increase; sustainable bond markets; Climate finance; Corporate bonds; Sovereign bonds; Securities markets; Bond yields; Global; East Asia;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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