Green Treasuries are a missing link in Biden’s big budget plans

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Joe Biden wants to move on his way to a greener, more sustainable future for America. For now though, he’ll likely fund it the old-fashioned way – with traditional taxes and bonds.

None of the $ 21 trillion treasury bill market includes bonds tied to financing environmentally friendly projects, despite investors’ seemingly insatiable thirst for these new types of debt. ethical assets. Germany, France and Italy have benefited from this, and the UK and Canada are both planning debuts. In the United States, municipalities are selling record amounts of green bonds, but the world’s largest debt seller is conspicuously absent.

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It’s more than a little ironic. Biden needs trillions of dollars, and global investors are only too happy to pour money into the world’s safest bonds. Such debt could be splashed on new power grids to avoid the kind of chaos seen in Texan freeze this year, or electric vehicle billing the fleet of Tesla Inc. loyalists Yet officials have not publicly launched the idea of ​​green Treasuries, with Treasury Secretary Janet Yellen saying private capital needs to fill most of the funding gap.

Go green

The United States has yet to join its peers in sales

Source: Bloomberg Intelligence

by Biden infrastructure plans and the climate agenda comes at a time when green bonds have emerged as one of the fastest growing sectors of international finance, with issuance exceeding $ 200 billion so far this year. The coronavirus crisis has accelerated the trend, as governments and businesses try to forge their way towards a recovery as well as a transition to low-carbon economies. While the administration could easily raise funds from existing loans and taxes, debt tied to sustainability projects is a way for many issuers to signal that the money is for good causes.

Green debt “fits Biden’s agenda and investor demand would be strong,” said Ronald van Steenweghen, a fund manager at Degroof Petercam Asset Management in Brussels.

In the absence of a move from the federal government, regional governments in America have already moved forward. Last year saw a record high of around $ 20 billion in green bonds, according to data compiled by Bloomberg Show and the municipal debt market could be heading for a second consecutive year of unprecedented environmental debt issuance, spurred in part by the conversation around Biden’s plans. The Washington Metropolitan Area Transit Authority has just sold $ 874 million in green bonds, while the New York Metropolitan Transportation Authority is one of the largest issuers.

Go green

Municipal green bond sales soar with 2020 marking record year

Source: Bloomberg


Still, it’s a small slice of the $ 3.9 trillion U.S. municipal market, where states and communities raise money for transportation, schools, and housing. And that’s tiny compared to the monster that is the funding done by the US Treasury, which has historically tended to take a long time to think about any change in its debt lineup. Proposals to extend bond market maturities beyond the current limit of around 30 years have been repeatedly launched and dropped, while the idea of ​​issuing the debt related to the replacement of the discredited Libor benchmark was transferred to more than a year.

Green Treasuries look “pretty far away for now,” said Gennadiy Goldberg, senior rates strategist at the Toronto-Dominion Bank. “I wouldn’t be surprised to see the Treasury explore the matter at one of its next repayment meetings, but I would even suspect such exploration will take a back seat to more timely issues.”

Treasury Department spokeswoman Lily Adams declined to say whether the United States is considering issuing green bonds.

Slow hedges

The lack of commitment hasn’t stopped investors from salivating at the prospect of the world’s largest borrower joining the green rush in the years to come. Issuers succeed in lowering their costs, because the scramble for these assets creates a so-called “greenium ”, as well as strengthen their image.

To begin issuing, the US Treasury would need to create a mechanism to separate funds raised from green securities from those in the general account, and a framework for what the money could be spent on. It would also take time. In the European Union, set to become the world’s largest green issuer, technocrats aim to release green bond standards this summer, after early political leaders. proposed debt in September.

Political divisions within government could also constitute a roadblock. There is a risk that any future administration will abandon the program, undermining the Treasury’s “stable and predictable” mantra, said Goldberg of the Toronto-Dominion. Officials are also likely to be aware of the potential liquidity implications, he added.

Some senators are pushing for muni-bond infrastructure grants, similar to former President Barack Obama’s “Build America” bonds sold in 2009 and 2010 to help the economy recover from the financial crisis. Others try to create a national green bank.

“Another Build America Bond type program would be the easiest way to get a green type bond,” said Amar Reganti, managing director of Wellington Management and former deputy director of the Treasury’s Office of Debt Management. “The government could launch a green bond-type program through state and local governments, to get this spending to go faster.”

Ultimately, this may depend on the high-level political support that green treasury bills enjoy. In the case of the UK, last year its debt office emerged uncertain about the need for a separate green debt, but a push from parliamentarians and Ministers are expected to deliver green gilts before the UK hosts a great UN climate summer this year.

Biden must prove to the world that the United States is showing climate leadership to overcome a lack of credibility, after his predecessor Donald Trump withdrew from the Paris agreement on greenhouse gas emissions. His plans have drawn criticism from Alexandria Ocasio-Cortez for not going far enough on the environment, so green debt could be a way to show the government is putting its money where it is.

“No other administration has ever talked so much about climate and the environment as this group,” said Ian Katz, analyst at Capital Alpha Partners in Washington. “The way this administration approaches things on ESG and the climate is, ‘let’s go as far as we can.”

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