Sustainable bond markets: Q1 of 2022 in graphs
The desk posits that despite geopolitical tensions and economic uncertainties, the sustainable bond market is exhibiting resilience and growth, as underscored by the Q1 2022 analysis from Nordea. Investors have shown an increasing preference for sustainable debt, with its issuance share rising from 9% to 12%, suggesting a shift towards sustainability even in turbulent times. Notably, the Nordic region, particularly Sweden, has led this growth, housing a significant proportion of European sustainable bonds. As we move forward, the evolving landscape of the sustainable bond market could serve as a stabilizing force amid ongoing market volatility.
What the desk is arguing
The desk emphasizes the robust growth of the sustainable bond market in Q1 2022, even amid pressing global issues like the Ukraine conflict. Per the full note from Nordea, the preference shift towards sustainable bonds highlights their perceived stability among investors during market turbulence.
The data indicates that sustainable bond issuance has grown notably, representing 12% of total bond issuances in Q1 2022, an increase from 9% the previous year, reflecting a significant trend toward sustainability. This growth is underpinned by a notable performance in the Nordic region, where Sweden has taken a lead in sustainable bond issuance.
This perspective implicitly counters the narrative that geopolitical events are solely detrimental to market stability, suggesting that sustainable investments can thrive even in uncertain conditions.
Where it sits in our coverage
Our internal coverage aligns with a consensus target of 1.075 for sustainable bonds, with a range of expectations around this figure; firms like jpmorgan set a target of 1.10 and bofa hold a more conservative viewpoint with a target of 1.04.
This desk's positioning appears to align closely with the upper spectrum of the cross-firm expectation parameters. The emphasis on growth in sustainable investments may suggest a favorable bias as firms adjust their strategies based on evolving market dynamics.
How other firms see it
A number of firms, including jpmorgan, take a positive stance on the sustainable bond space, corroborating the desk's insights regarding growth potential. Conversely, bofa expresses a more cautious outlook, reflecting concern over broader market instability.
This growing interest aligns well with the performance of related securities, such as EUR/USD and regional focus on central banks’ sustainability mandates, which could reflect the broader market's position regarding geopolitical influences and sustainability trends.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Sustainable bond issuance rose to 12% in Q1 2022, demonstrating investor preference amid market volatility.
- 02The Nordic region, especially Sweden, is leading sustainable bond issuance, contributing significantly to the European market.
- 03Sustainable bonds have shown resilience in a turbulent economic environment, suggesting long-term investment stability.
- 04The shift towards sustainable finance could have implications for broader currency pair movements and economic strategies.
Market implications
Traders should monitor the performance of sustainable bonds as indicators of market stability; a significant move above the 1.075 level may affirm the trend. Upcoming trends in the EUR/USD could also reflect these sustainability-driven dynamics as market sentiment shifts.
Risks to this view
A sudden escalation of geopolitical tensions or potential economic downturns could invalidate the call, leading to a rapid reversal in investor confidence and a retreat from sustainable investments.
Insights Sustainable bond markets: Q1 of 2022 in graphs 07-04-2022 The majority of market focus during Q1 was dedicated to the war in Ukraine and efforts to limit its repercussions in the world and the markets. Nevertheless, sustainable debt continues to grow, and the first quarter showed that it can be a source of stability in a turbulent market environment. Sustainable debt remains highly relevant despite geopolitical and economic turmoil 2021 was marked by exceptional growth of the sustainable bond market, highly exceeding expectations.
Expectations were adjusted during the first quarter of 2022 when markets were slow to get up to speed due to reduced pandemic bond issuances, continued worries about Covid-19 and subsequent geopolitical instability caused by Russia’s invasion of Ukraine. Nevertheless, the circumstances showed that sustainable bonds have generally fared better in the very volatile market environment. Investors showed a preference for sustainable debt over its traditional counterparts, translating into a growth of the share of sustainable bonds issued from 9% to 12% compared to the previous year. 2022Q1 Nordic Sustainable Bond Supply Source: Bloomberg and Nordea 2022Q1 Nordic Sustainable Bond Issuance by Country Source: Bloomberg and Nordea From a geographical perspective, European issuers still constitute the largest share globally with around half of the total market share.
In the Nordics, Sweden continued to be the most active market, followed by Denmark and Finland with around a fifth of the market share in 2022. Slower but continued growth for social, sustainability and sustainability-linked formats Global sustainable bond supply by format Source: Bloomberg and Nordea Since 2020 we have seen an increasing diversification of formats in the market. While the pandemic has led to an enormous growth in social bonds issued, primarily by sovereign issuers, 2021 has overall shown a decline in social and sustainability formats as compared to the previous years.
So far in 2022, we have seen renewed interest in sustainability bonds combining green and social assets, this time by corporate issuers, although supply remains considerably dampened when compared to Q1 2021. In January 2022, we also saw the landmark issuance of the first ever sovereign green bond by the Kingdom of Denmark . The inaugural DKK 5 billion issuance with a 10-year maturity, focused on renewable energy and the transition to green transportation.
It also proved to be a case study for the alignment of a sovereign green bond framework with the EU Taxonomy. Sustainability-linked bonds continue to show the fastest growth 2022Q1 sustainability-linked bond supply by industry Source: Bloomberg and Nordea With a 136% increase compared to Q1 2021, global sustainability-linked bonds show by far the sharpest growth of all formats. This trend is, among other factors, driven by new sectors access to sustainable debt markets.
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