Rieger Report: Green Municipal Bonds

“Green” Municipal Bonds and the S&P U.S. Municipal Green Bond Index

Introduction:

The green bond market continues to grow and that expansion includes bonds designated as “green” in the municipal bond market by the Climate Bond Initiative. The rapid expansion of municipal green bonds can be highlighted in the current total $24.9 billion in par value tracked by the S&P U.S. Municipal Green Bond Index which launched in January 2019.

The win/win combination of doing “good” for the environment while doing well via tax-exempt municipal bond investing makes this set of over 1,800 bonds stand out.

One important caveat: The composition of up “green” municipal bonds does have a new issue bias. This bias can be seen in the volume of new issues of green bonds in recent years as well as the types of projects being funded which tend to be long term capital projects. The resulting average duration of “green” bonds is longer than the average duration of the overall municipal bond market. This also reflects itself in an average yield that is higher as well. I suspect that the new issue bias will be a factor in keeping the duration of green bonds relatively longer and yields relatively higher for the foreseeable future.

S&P U.S. Municipal Green Bond Index

Why I like this index and the bonds it tracks:

  • Bonds must be designated as “green” by the Climate Bond Initiative
  • Only fixed rate tax-exempt municipal bonds are tracked (AMT issues are included, but taxable municipal bonds are not)
  • Bonds with $2 million or higher par value are included which enables a broad and inclusive index:

Total Par Value: $24.9 billion   Total Market Value: $28.2 billion  Total Number of Bonds: 1,806

  • High average quality: Moody’s AA2, S&P AA and Fitch AA
  • Incremental yield of “green” bonds over general municipal bond market

Data as February 22, 2019. Source: S&P Dow Jones Indices, LLC..

S&P U.S. Municipal Green Bond Index Key Characteristics Comparison

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Data as February 22, 2019. Source: S&P Dow Jones Indices, LLC. Table is provided for illustrative purposes only.

S&P U.S. Municipal Green Bond Index Size & Scope

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Data as February 20, 2019. Source: S&P Dow Jones Indices, LLC. Table is provided for illustrative purposes only.

S&P U.S. Municipal Green Bond Index Yield to Worst

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Data as February 20, 2019. Source: S&P Dow Jones Indices, LLC. Table is provided for illustrative purposes only.

Links to Data Resources Used in this Report

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