Fund managers expect the country’s first green bond will offer the same yields as government bonds, even though overseas buyers are often willing to receive less.
Already a subscriber?Investors eyeing Australia’s first historic green bond want the same returns as standard government debt, even though international buyers are often willing to receive less to get exposure to the sustainable assets.
Stephen Cooper, who manages $10 billion in fixed income at First Sentier, expects the bond to offer similar terms to conventional government debt. As a guide, Australia’s May 2034 government bonds currently yield 4.12 per cent, equivalent to 7 basis points under 10-year futures.But in international markets, green bonds can pay up to 5 basis points less than their standard peers as investors are willing to pay a higher price for green securities, known as a “greenium”.
He welcomed the green bond because it would reduce the “tracking error” against the Australian Bond Composite Index. A tracking error is the difference between the return fluctuations of a portfolio and that of a chosen benchmark. The majority of green bond borrowers in Australia are the financing arms of the state governments, the big local banks, and offshore issuers that sell Australian dollar debt. Melbourne Water’s Western Treatment Plant, the Sunshine Coast Solar Farm, and the Parramatta Light Rail were partially funded through green bonds.
“We’ll certainly look at it but since we don’t have a green bond fund, it will depend on its value and purpose,” said Anthony Kirkham, head of Asia-Pacific fixed income at Western Asset, which has $19 billion under management.Advertisement, Mr Kirkham said, though he has not yet seen the detail.
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