Green Spread of US Municipal Bonds

Abstract

Green bonds direct financial resources towards environmentally friendly projects. This paper estimates the greenium, defined as the yield difference between a green bond and its non-green counterpart, in the US municipal market. Using the Nelson-Siegel model, we generate a sequence of model-based time series greeniums for each tenor of the interest rate curve. The paper, also, empirically examines various green bonds' features, including tax treatment, reporting status, industry, and optionality, to understand whether certain characteristics make some green bonds more appealing to investors than others.

Keywords: JEL classification: G11, G12, G23 Green Bonds, Greenium, Nelson-Siegel Model, Taxation