Tokyo launches climate transition bonds, 1st time globally

Japan held an auction for sovereign climate transition bonds on Wednesday for the first time globally, however, the demand for these bonds was slightly less than anticipated, Reuters reported.

Climate transition bonds, a fairly recent type of bonds, aim to finance companies’ or even governments’ efforts to reduce their environmental impact. 

Unlike green bonds, which allocate funds to specific projects or focus on the issuer’s profile, climate transition bonds have a different purpose. 

Japanese Prime Minister Fumio Kishida initiated his plan to sell 20 trillion yen of climate bonds over the next decade by selling 800 billion yen ($5.3 billion) in 10-year transition bonds to assist Japan in achieving its goal of zero greenhouse gas emissions by 2050. 

The raised funds are anticipated to support projects like affordable wind power generators and aeroplanes running on alternative fuels. 

The bonds, priced to yield 0.74 per cent on Wednesday, had slightly lower pricing than expected. A day earlier, in the when-issued market for yet-to-be-issued securities, the bond yields were 0.655 per cent, as bond prices and yields have an inverse relationship. 

Keisuke Tsuruta, a fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, commented that the expectations before the auction were probably too high. 

However, he noted that the yield on climate bonds was slightly lower than that of 10-year JGBs, indicating a premium on these bonds. 

On Wednesday, the yield on regular 10-year Japanese government bonds was 0.755 per cent.

The finance ministry of Japan has a plan in place to auction 800 billion yen worth of five-year transition bonds on February 27. Following this, they intend to sell 1.4 trillion yen of transition bonds in the fiscal year that begins in April.