Swedish RE Bond Blowup: Not a green issue

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We opine that the Swedish real-estate bond sell-off should have little direct bearing on relative green/labelled bond performance in international markets. Having said this, the aggregate green bond segment might underperform in SEK currency specifically, but due to the strong sector tilt toward real-estate rather than some inherent feature of green bond instruments per se.

Recent price action for certain Swedish real-estate issuers has been very poor, even from the perspective of an atrocious H1 for global corporate bonds.

A significant issuer in the segment, Samhällsbyggnadsbolaget (SBBSS) suffered especially hard, with the seniors and perps dropping 20 points in cash.

In terms of green bond issuance, the Swedish property sector’s total issuance amounts to 47% of all corporate bond issuance in SEK.

And out of those real-estate bonds, more than 50% have been issued in a green format. That is a remarkable concentration. In contrast, the amount of labelled issuance from the Swedish real-estate sector into international markets is quite low: of the EUR19.1bn issued in EUR, only 2% of nominal is actually issued as green.

Thus, domestically, pure flow factors may make it appear that green bonds are underperforming in SEK, but it seems unnecessary to extrapolate such technical factors into a broader, international green bond perspective.