Rieger Report: Green Municipal Bonds

Posted on by riegerreport

“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

RiegerReport_022519_1

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

RiegerReport_022519_2

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

RiegerReport_022519_3

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

Click here for a print friendly version of this report.

Copyright © 2019 Rieger Report LLC. All rights reserved. Redistribution in whole or in part is prohibited without written permission of the Rieger Report LLC. All information provided by the Rieger Report LLC is for informational purposes only, impersonal, and not tailored to the needs of any person, entity or group or persons. It should not be considered financial advice. The Rieger Report LLC receives compensation in connection with licensing its research, advertising on its website, speaking and consulting services.
Past performance of any investment product or index referenced in the Rieger Report is not an indication of or guarantee of future results.
The Rieger Report LLC is not an investment advisor, and the Rieger Report LLC makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. A financial advisor should be contacted to determine what may be best for your individual needs. The Rieger Report LLC is not a financial or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. No legal relationship is created between you and Rieger Report LLC.
The Rieger Report LLC does not act as a fiduciary or investment advisor. While the Rieger Report LLC has obtained information from sources it believes to be reliable, the Rieger Report LLC does not perform any audit or undertake verification of any information it receives.
The Rieger Report Rankings are opinions of relative ranking among the peer group analyzed as of the date expressed and not statements of facts. Rieger Report model portfolios are intended for illustration only. Any opinion or analysis decisions are not to be construed as recommendations to purchase, hold or sell any securities or to make any investment decisions, and do not address the suitability of any security. The Rieger Report LLC does not assume any obligation to update the content in this publication in any form or format.
Your use of any information from this document or presentation is at your own risk and without recourse against Rieger Report LLC, its members, managers, or employees. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.