It is not without irony that the green bond market was born in the midst of the global financial crisis of 2008, a liquidity-driven crisis culminating in a credit crunch and worldwide recession. General concerns about bond liquidity have persisted ever since. Corporate bond liquidity, in particular, has diminished as a result of tightening regulation, shrinking inventory and quantitative easing.
In spite of this backdrop, a small subset of the overall market, green bonds have been able to thrive. The success and growth of this market is the result of a distinct shift towards sustainable finance over the past decade.
This insight piece analyses traditional measurements of liquidity within the green bond space, such as market growth, new issuance activity, dealer inventories, and the bid/offer spread in the marketplace. From this analysis we can draw three overarching conclusions:
- Liquidity in green bonds has been encouraging, given the backdrop of diminishing corporate bond liquidity over the past decade.
- Strong and diversified growth in the green/impact bond market is set to continue.
- While challenges remain in accessing and buying bonds, we believe these can be addressed by dedicated managers. An experienced and focused specialist manager is able to overcome liquidity challenges on the buy side, through close dialogue, collaboration and engagement with issuers. Being recognized as a genuine, impartial adviser, aligned to market integrity, brings increased access to the market.
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