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The changing value of the ‘green’ label on the US municipal bond market


Green bonds are seen as a key instrument to unlock climate finance. While their volume has grown steadily in recent years, the impact of the ‘green’ label on the bond market is poorly understood. Here, we investigate the differences between the yield term structures of green and conventional bonds in the US municipal bond market. We show that, although returns on conventional bonds are on average higher than for green bonds, the differences can largely be explained by the fundamental properties of the bonds. Historically, green bonds have been penalized on the municipal market, being traded at lower prices and higher yields than expected by their credit profiles. In recent years, however, the credit quality of municipal green bonds has increased and the premium turned positive. Green bonds are thus becoming an increasingly attractive investment, with scope to bridge the climate finance gap for mitigation and adaptation.

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The authors acknowledge financial support from the Horizon 2020 research and innovation programme under grant agreement no. 640772 (DOLFINS) and no. 642018 (GREEN-WIN). We thank the PostgreSQL, QuantLib and Scrapy projects for making their software freely available. The authors are grateful to G. Capelle-Blancard who provided useful comments on a previous version of this manuscript.

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On the basis of an idea of A.M., A.K. and A.M. designed the research and wrote the paper. A.K. designed and performed the quantitative analysis.

Correspondence to Antoine Mandel.

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The authors declare no competing financial interests.

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