The Green Bond Yield Dilemma

Abstract: This paper examines if green bonds are priced differently than conventional bonds in the Swedish secondary market. We further explore if there is a difference in the liquidity effect on yield between the two bond types. Looking at transaction data for 32 green bonds and 303 conventional bonds for the period 2013-2017 and controlling for bond yield affecting factors, we find that green bonds exhibit lower yield than conventional bonds. The difference is largest in 2013-2014 and decreases over time. For the whole period, the yield difference is quantified to 12.9 basis points. We do not find robust evidence for a green liquidity effect on yield. Our results have implications for national policymaking and reveal a dilemma that investors have to address. This highlights the need for future research in the yet limited field of green bond pricing.