The Green Bond Premium: An Extension with Use of Proceeds

Abstract

We compare the yields of green bonds to those of their constructed conventional twins while controlling for liquidity to address the green bond premium, defined as the yield differential between a green bond and a conventional twin. In the period from January 2017 to April 2019, we find that green bonds on average trade with a negative premium of -1.74 bps. Further, we find that the use of proceeds labelled energy have a differentiating effect on the premium, and indications of a premium that converges to zero over time. Implications of our findings are that there still is a green bond premium present, but, whether it will persist over time as the market segment matures remains to be a an unanswered question.