WHY ALL THE FUSS OVER CLIMATE ALIGNED BONDS?

SO WHY ALL THE FUSS ABOUT CLIMATE ALIGNED BONDS? AND WHAT ARE THEY ANYWAY? I WANT TO TALK TO YOU AND EXPLAIN WHY THERE IS SO MUCH FUSS OVER THIS NEW BOND MARKET.

MANY BANKS ARE MOVING EMERGING MARKETS FROM THE OUTER PAGES OF THE INVESTING LEDGER AND TOSSING THEM INTO MAINSTREAM INVESTING. SOVEREIGN DEBT OF DEVELOPING NATIONS IS NOW AT THE HEART OF A NEW GLOBAL BOND INDEX ACCOUNTING SO FAR FOR ABOUT 20% OF ALLOCATIONS. THE NORM RECOMMENDS ABOUT 2% WEIGHTING OVER ALL INTO EMERGING MARKETS BUT MORE AND MORE FUNDS LOOKING FOR YIELD MONEY MANAGERS AD EXCHANGE-TRADED FUNDS HAVE THE POTENTIAL TO SET OFF A NEW WAVE OF BUYING. A RALLY CUT AVERAGE YIELDS ON LOCAL CURRENCY BONDS BY 50 BASIS POINTS 4.25% IN THE PAST YEAR.

IF INVESTORS DECIDE TO USE THIS BENCHMARK THIS WOULD CLEARLY BE SUPPORTIVE FOR EMERGING MARKETS. IT’S WAY HIGHER THAN IN TRADITIONAL INDEXES.

DO YOU REMEMBER ME TALKING ABOUT THIS ON THE CALL? MORE AND MORE INSURES AND PENSION FUNDS AND SOVEREIGN WEALTH FUNDS ARE SEEKING OUT LOCAL CURRENCY DEBT OF DEVELOPING COUNTRIES TO REPLACE THE INCOME LOST BY SUB ZERO YIELDS EVERYWHERE ELSE. DID YOU REALIZE THAT INVESTORS HAVE TO PAY TO HOLD 11 TRILLION OF THE WORLDS BONDS FUNDS? THAT’S A CRAZY AMOUNT OF LOSS. SO FUNDS AND MONEY MANGERS ARE BEING FORCED OUT OF THEIR COMFORT ZONE AND LEARNING HOW TO EMBRACE THE NEW NORM, THE NEW REALITY IN ORDER TO MEET THEIR TARGETS.

GLOBAL INVESTORS THAT WOULD NORMALLY FOCUS ON DEVELOPED COUNTRIES ARE NOW BOOSTING THEIR POSITIONS IN EMERGING COUNTRIES INCLUDING IN HARD CURRENCY ASSETS. YOU REMEMBER WHAT HARD CURRENCY IS RIGHT? HARD CURRENCY IS A CURRENCY NOT LIKELY TO DEPRECIATE SUDDENLY OR FLUCTUATE IN WIDE SWINGS.

SEE WHAT GOING ON RIGHT NOW IS THAT FIXED INCOME SHOPS ARE TAKING OFF-BENCHMARK POSITIONS SO IT IS VERY DIFFICULT TO EVALUATE THE PERFORMANCE OF THIS ASSET CLASS. THERE ISN’T REALLY A GLOBALLY RECOGNIZED INDEX WHERE FUND MANAGERS CAN SEEK TO OUT PERFORM WHICH HAS SUCH A HIGH WEIGHTING IN EMERGING MARKET DEBT.

THE FINAL TEST FOR THE NEW BENCHMARK WILL BE WHETHER ETF’S ADOPT IT AND LAUNCH FUNDS BASED ON IT. THINGS ARE SO HARD RIGHT NOW AND INVESTORS ARE HUNTING FOR YIELD AND THIS PUSHED 12.7 BILLION THIS YEAR INTO ETF’S THAT FOCUS ON EMERGING MARKETS. LAST YEAR THE TOTAL IN EMERGING MARKETS WAS 8.3 BILLION.

THIS IS REAL PROGRESS WE ARE WATCHING HERE. THE OTHER SIDE OF THIS IS THAT MOST EMERGING MARKETS ARE NOW PUTTING SOVEREIGN DEBT INTO GREEN PROJECTS WHICH SIMULTANEOUSLY BOOSTING THE GREEN BOND MARKET. SO NOW DO YOU UNDERSTAND WHAT ALL THE FUSS IS ABOUT?

HERE LET ME SHOW YOU AN EXAMPLE THIS IS FROM FINANCIAL TIMES AND I THINK THE STRUCTURE OF THIS TRADE IS FANTASTIC LETS LOOK AT IT. THIS DEAL WAS SET UP 2 YEARS AGO BEFORE ALL THE FUSS STARTED.

Century-long green bond bets on Washington waste
US capital’s sewers lure environmental and long-term investors
https://www.ft.com/content/36e38514-0854-11e4-9380-00144feab7de
Investors can now make a century-long return on effluent emanating from Washington following the sale of $350m worth of ultra-long “green bonds” from the District of Columbia Water and Sewer Authority.

Proceeds from the debt, which will mature in October of 2114, will be used to help finance a new drainage program aimed at preventing excess sewage and rainwater from seeping from the US political capital into surrounding rivers.

It is the first time that debt used to fund an environmental project has been marketed with a century-long duration, and comes as sales of both green and ultra-long bonds have jumped in recent months.

The bonds fetched a yield of 4.81 per cent when they priced on Thursday, compared with the 3.37 per cent on offer from investing in 30-year US Treasuries.

LOOK THIS WAS WHEN TREASURIES WERE FETCHING 3.37% ON 30 YEARS, THOSE NUMBERS DON’T CARRY THESE DAYS.

While the bonds are being issued by the DC Water and Sewer Authority, meaning they resemble the municipal debt sold by government bodies, it is also the first deal in the US to come with a “green” certification from an outside agency.

DO YOU SEE THE DIFFERENCE IN THE STRUCTURE?

The debt’s environmental credentials, combined with its long duration and backing from DC Water, helped attract a $1bn order book from a wide variety of investors, people familiar with the deal said.

“These are investors that may not otherwise have been interested in DC Water previously,” said Mark Kim, chief financial officer. “We had traditional municipal investors show interest, we clearly had folk looking at the century bond as a long-duration play and then we also had the green bond investors.”

YOU SEE THIS IS TRENDING NOW GO GREEN AND GO LONG.

Sales of green bonds have totaled $18.3bn so far this year, according to figures from Dealogic, compared with just $1.66bn in the equivalent period in 2013. At the same time, issuance of long-dated bonds, or those with durations of 30 years or more, has risen 16 per cent to $109bn in the year to date.

The environment is just very friendly for funding through capital debt markets,” said Adrian Miller, director of fixed income research at GMP Securities. “Unless we see a rapid back-up in Treasury yields and a sharp widening on spreads, the primary calendar will remain very strong and will include all sorts of credits and types of bonds.”

“This is not a tool that will immediately be adopted by authorities across the country,” said George Hawkins, general manager at DC Water. “But this opens up a new avenue.”

OK SO THIS WAS BACK IN 2014 THE FIRST DEAL OF IT’S KIND WAS DONE FAST FORWARD TO NOW AND IT IS BECOMING THE NEW NORM, THERE IS A BACK UP, YIELD IS NOT OUT THERE.

WELL DO YOU UNDERSTAND YET? ARE YOU STARTING TO FORM A MENTAL PICTURE OF HOW GREEN DEBT IS TAKING OFF AND WHY?

SO LOOK HERE THIS A FIRST EVER A GREEN STOCK EXCHANGE AND THIS EXCHANGE IS STAYING WITH THE THEME OF UNLOCKING GREEN CAPITAL. SEE THE MONEY IS THERE BUT ONLY NEEDS TO BE USED.
Luxembourg Launches World’s First Green Stock Exchange: LGX, ‘The Full Green Monty
Today, less than six weeks before COP22 , the Luxembourg Stock Exchange (LuxSE) becomes the first stock exchange globally to introduce a platform for green financial instruments. Luxembourg Green Exchange (LGX) is for issuers who dedicate 100% of the raised funding to green investments. It will restrict access to those issuers who comply with stringent eligibility criteria.

Asked why he is doing this, Robert Scharfe, CEO of LuxSE says: “Why are we doing it ? We think the time is right. New issuance of green securities has taken off since COP21. When we look at the market it is good news that it is growing so fast, but is it growing fast enough? No, it is not. As the International Energy Agency (IEA) has estimated, the world needs $1 trillion a year until 2050 to finance a transition to low emissions.”

YOU CAN READ THE ARTICLE HERE
http://www.forbes.com/sites/dinamedland/2016/09/27/luxembourg-launches-worlds-first-green-stock-exchange-lgx-the-full-green-monty/#245f1f2196d9

OR WATCH THE QUICK VIDEO
https://youtu.be/SWrG23FYUtk

HERE IS ANOTHER FIRST THE WORLDS FIRST CLIMATE-ALIGNED BOND INDEX WAS LAUNCHED ON SEPTEMBER 2ND IN CHINA.
CCC Launches New Partnership With Climate Bonds Initiative & CECEP
http://blueandgreentomorrow.com/2016/09/02/ccc-launches-new-partnership-climate-bonds-initiative-cecep/
CCDC has launched the World’s first climate-aligned bond index new partnership with Climate Bonds Initiative & CECEP
BEIJING/LONDON: 11.30 BST: 02/09/2016: China Central Depository & Clearing Co. ltd (CCDC) has partnered with Climate Bonds Initiative (CBI) and CECEP Consulting to launch the ChinaBond China Climate-Aligned Bond Index on September 2, 2016. As the world’s first Climate-Aligned bond index, it will fill a gap in tracking a growing source of bond issuance.

Climate-aligned bonds are used to finance low carbon and climate adaptation infrastructure, including labelled green bonds with use of proceeds defined and labelled as green, and a larger universe of bonds financing climate-aligned assets that do not carry a green label. Climate-aligned bonds are financing assets across various climate themes: energy, transportation, construction, water, waste pollution control, agriculture and forestry.

In order to conform to international standards and satisfy the demand of international investors, CBI and CECEP Consulting, using their combined domestic and international expertise, identify climate-aligned bonds for the Index based on the use of funds and the information of the issuers’ industry, main business and main products.

According to the data analysis, the base date of the ChinaBond China Climate-Aligned Bond Index has been set as Dec 31, 2009 and the base value is 100. As of July 29 2016, the index has 278 constituents, a cap-weighted duration of 5.66, a Total Return Index return of 10.24 percent in the recent year and a market value outstanding of 1.31 trillion RMB (USD 194.6 billion).

The launch of China Bond China Climate-Aligned Bond Index now provides a series of indicators to reflect the price change of overall climate-aligned bond market and climate-aligned investment performance benchmark for domestic and foreign investors.

It improves the transparency of the climate-aligned bond market in China, sets a positive social image of climate-aligned bond issuers and promotes the development of the green economy and the formation of resource-saving and environment-friendly society.

OK WELL WE WILL END HERE FOR NOW BUT I HOPE I HAVE SUCCESSFULLY HELPED YOU SEE THE NEW MOVEMENT AND WHERE WE ARE GOING WITH THIS AND NOW YOU UNDERSTAND WHY ALL THE FUSS.

WE WILL DISCUSS MORE TODAY ON GREEN BONDS WHEN I COME BACK.
YOU CAN LEAVE ME COMMENTS OR ASK QUESTIONS AT THE BOTTOM OF THIS PAGE.

8 thoughts on “WHY ALL THE FUSS OVER CLIMATE ALIGNED BONDS?

  • Farhad

    This makes a lot os sense!. We know global growth depends on growth of credit/debt. Advanced economies are already debt saturated, so the new debt needs to go into emerging markets where both development opportunist are abundant and where the countries are not heavily debt-burdened already, unlike EU, Japan, UK, US!

  • Marc

    The LGX platform appears to be a vital component of the new financial system. It will provide an essential way to move money!

    Very interesting to watch.

    Marc

    • Marc

      Forgot to add that not only will it move money, but it’s an important vehicle to create new debt, which ultimately will keep the financial engine moving!

  • Trident704

    Agreed, gentlemen. Go green, and go long! The new global finance reality, indeed.

  • Ron

    Go green and go long.
    That fits my plan perfectly as I am looking out for my children and theirs.

  • Memphis

    I love that you are pointing at this very important trend.
    There is presently more capital sitting on the sidelines than at any point in history. The cycle of global deflation is the ultimate culprit here as capital always retreats in such times.
    While most have no sense of focus and can see only bad times ahead you have been steadily pointing at what’s coming!
    Many thanks for sharing your elevated perspective! It is now up to us as individuals to apply this new knowledge. 👍🏻

    • MY LADIES

      AMEN AMEN AMEN..I’M NOT SURE OF THE AGENDA OF THE DDOMSDAY PREDICTORS BUT IT’S PRETTY CLEAR THAT ALL THINGS ARE MANAGED AND WHILE THERE WILL BE A WRITE DOWN TO A DEGREE, THWERE WILL NOT BE A CRASH, AND IN NO TIME THE TRAIN WILL LEAVE THE CURRENT TRACK AND SWITCH TO THE NEW TRACK WITH ONLY A FEW BUMPS..

      THIS CAPITAL MARKET IS SO HUGE AND IS REALLY THE KEY TO EVERYTHING BUT NO ONE IS CATCHING IT…THAT’S WHY MEMPHIS WE ALWAYS STAY WAY WAY OUT IN THE FRONT OF THE CURVE, WE HAVE AN AWESOME TEAM THAT’S FOR SURE.

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