U.S. Treasury group weighs first green-bond sales

An advisory group of U.S. securities dealers and investors said the Treasury could consider exploring the sale of green bonds, which would put the U.S. among nations that have been marketing their debt to funds focused on environmental causes.

The option was raised in connection with the Treasury’s quarterly refunding announcements Wednesday and was part of a broader focus on expanding the potential types of securities sold by the federal government to seize on shifts in demand.

The Treasury Borrowing Advisory Committee, an industry group that works closely with the Treasury, proposed the consideration of various new securities such as callable bonds, different maturities of floating-rate and inflation-linked bonds, and the green-branded securities.

The U.S. is the only major sovereign-debt issuer in developed markets that hasn’t been selling green bonds, which have swelled into a $2.6 trillion market. The U.S. Treasury advisory group estimated that 17% of green bonds were issued by sovereign governments.

The TBAC presentation estimated such a program would help the government by tapping into “a growing investor base which couldn’t invest in traditional U.S. Treasuries,” such as “institutional investors with a target allocation for green investments.” The group noted that by the end of 2022, there were over 1,200 investment funds with climate-related mandates globally.

The TBAC presentation said there may be demand for such securities because only 22% of the outstanding green bonds have been issued in the U.S. dollar, versus 49% sold in euros.

In terms of issuance metrics, TBAC noted that sales “of green bonds has been at levels similar to or marginally tighter than traditional bonds from the same issuer and with the same maturity.”

Although demand from investors for green bonds has outpaced supply and resulted in “a small green premium – ‘greenium,’ ” the TBAC cautioned that “the relative depth and liquidity of green bonds versus traditional bonds might become more of a factor in the future.”

The Advisory Committee said a move to sell green bonds on a regular and predictable basis would “be primarily based on Treasury’s investor base expansion objective, with greenium only being a potential secondary benefit.”