Monthly Commentary – January 2022 Climate Bond

by | Feb 11, 2022 | Analysis & Performance, News

Monthly review and performance

January was an overall risk-off month for credit, following overall weak sentiment across risk assets. EUR investment grade (IG) spreads widened fairly consistently throughout the month, ending the month 10 bps wider. Expectations of more hawkish monetary policy from the Federal Reserve (Fed) and Bank of England as well as rising geopolitical tensions linked to Russia / Ukraine drove weakness. Interest rates have continued to rise during the month, with the 10-year Bund yield up close to 20 bps, ending the month in positive territory. The impact of both higher rates and wider spreads led to negative total returns in credit. Similar to the fourth quarter, higher beta segments such as Additional Tier 1s (AT1s) and insurance Tier 2 underperformed senior debt during the month.

Green bond issuance from European financials picked up in January, with EUR 5.8 billion of supply, as primary activity was elevated during the month and ahead of the earnings season black-out period for fourth quarter results. Volatile markets led to the majority of supply coming in banksā€™ senior preferred format on top of some banksā€™ senior HoldCo / non-preferred. There was no supply in the form of subordinated debt both from banks or insurers in green / sustainability format. In terms of positioning, we have not added any new positions to the fund during the month, and there has been no significant change in allocation.

We continue to see strong value in green bonds of European banks and insurers. With an average yield of 1.7% on the fund and an average spread of 160 bps, we are capturing close to more than double the yield of 0.8% on IG corporate bonds. We remain biased towards high quality issuers (BBB+ average bond rating).

Project Corner : De Volksbank

Project features

  • Ā Project type: green property ā€“ residential mortgages

  • Ā Location: Netherlands, nationwide

  • Project owner: Individual property owners

  • Total amount of mortgages financed: EUR 7.8 billion

  • Total number of loans: 35,268 mortgage loans

  • Estimated CO2 emissions avoided: 94,670 tons CO2 per annum or 13 tons per EUR million, equivalent to 70,000 km driven in the Netherlands.

Additional details

  • Ā Proceeds of the green bond are fully allocated to green mortgages in the top energy efficiency category ā€“ energy label of ā€œAā€ (represents 19% of all residential properties in the Netherlands)

  • Allocation report audited by PwC, Impact reporting verified by CFP green buildings to assess the environmental impact of buildings

  • The Valuation date: December 3, 2025
    serie AsOFDateFK FundName ISIN MTD MTD YTD YTD SI SI
    1 20,251,203 GAM Sustainable Climate Bond fund IE000BSJBO14 -0.02 -0.0002 0.0349 3.49 0.0194 1.94
    2 20,251,203 GAM Star Crdt Ops EUR Inv IE00B50JD354 0.05 0.0005 0.0408 4.08 0.7335 73.35
    3 20,251,203 GAM Star Crdt Ops GBP Inv IE00B510J173 0.10 0.0010 0.0618 6.18 1.0636 106.36
    4 20,251,203 GAM Star Crdt Ops USD Inv IE00B5769310 0.06 0.0006 0.0716 7.16 0.9847 98.47
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