©Reuters. Japanese Prime Minister Fumio Kishida attends a bilateral meeting with Kenyan President William Ruto at the Prime Minister’s Office in Tokyo, Japan, Thursday, Feb. 8, 2024. Shuji Kajiyama/Pool via REUTERS/File Photo
By Junko Fujita
TOKYO (Reuters) – Japan auctioned sovereign climate transition bonds for the first time globally on Wednesday, although the bonds met slightly less demand than expected.
Climate transition bonds are a relatively new class of bonds that aim to finance a change by companies, or in this case a government, towards having a lower impact on the environment. They are distinguished from green bonds where the proceeds are allocated to a specific project or focus on the profile of the issuer.
The sale of 800 billion yen ($5.3 billion) in 10-year transition bonds was the first of Prime Minister Fumio Kishida’s plan to sell 20 trillion yen of climate bonds over the next decade to help the nation reach the goal of reducing greenhouse gases to zero. by 2050.
The proceeds are expected to go to projects such as low-cost wind power generators and airplanes that use alternative fuels.
The bonds were yielding 0.74% on Wednesday, priced slightly lower than expected. The day before, bond yields were as high as 0.655% in the so-called “at-issue” market, which is a market for bonds yet to be issued. Bond yields move inversely to prices.
“I would say that expectations before the auction were too high. However, the yield on climate bonds was slightly lower than the yield on 10-year JGBs, meaning that the bonds enjoyed a premium,” said Keisuke Tsuruta, income strategist permanent at Mitsubishi. UFJ (NYSE:) Morgan Stanley Securities.
Regular 10-year Japanese government bonds yielded 0.755% on Wednesday.
Japan’s Finance Ministry plans to sell 800 billion yen of five-year transition bonds on Feb. 27, followed by 1.4 trillion yen of transition bonds in the fiscal year starting in April.
($1 = 150.52 yen)