We have observed that the combination of tighter monetary policy and a commitment to reduce the climate impact of the ECB’s asset holdings, would likely lead to underperformance of the most carbon-intensive issues in the CSPP portfolio. VoxEU, the policy portal of the Centre for Economic Policy Research, published a report supporting asset tilting in the CSPP incorporating climate considerations. The flows coming from the ECB, both absolute and portfolio tilts, will continue to be a major flow in the corporate bond market. We want to review the relative performance of these issues to see if these flows have begun to impact the market.
We have run an analysis on the CSPP portfolio to identify issues of benchmark 5-year maturity. Since the invasion of Ukraine, we have seen an outperformance of our carbon intensive portfolio likely driven by the increase in oil prices. Since May we have seen a reversal with carbon intensive issuers underperforming. This has been against a backdrop of consistent market widening throughout both periods. We also observe a local drop in rolling correlation between the portfolios at the inflection point.
Based in London, Jo leads AFII’s research and a global team supporting fixed income investors as they align their portfolios with climate and sustainability goals. She joined AFII after 18 years in fixed income markets at JPMorgan.
Johan develops tools and analytics that help fixed income investors invest in a climate- and nature-positive way, including AFII’s portfolio tools Co₂liseum and FIONA. He previously worked in Deloitte’s Risk Advisory practice.
