Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?

IMF Working Papers, June 14, 2024

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Sovereign issuers entered sustainable bond markets later than corporates, despite sovereign bonds typically providing benchmarks and catalyzing corporate bond market development.
The empirical study examines whether sovereign green bond issuance affects the development of private sustainable bond markets.

Both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut.
The effects are more pronounced in countries with stronger climate policies.
Sovereign green bond issuance improves the quality of green verification standards in the corporate bond market, consistent with fostering third-party reviews and promoting best practice in green reporting and verification.
The sovereign debut increases liquidity of corporate green bonds in the same jurisdiction.
The sovereign debut diminishes yield spreads of corporate green bonds in the same jurisdiction.

Sovereign green bond issuance can be used as a policy tool to catalyze private sustainable bond market development.
Stronger national climate policies amplify the positive market effects of sovereign green bond issuance.
Encouraging third-party verification and best-practice green reporting standards may strengthen market quality and investor confidence following sovereign green bond debuts.