GB
gb
GB
en-GB
gb_inst_classes
inst
Institutional
en
en
Insights

Social bond market responds to the coronavirus crisis

The coronavirus outbreak is a social issue that threatens the well-being of the world’s population. With ther ICMA Social Bond Principles published in 2017, the past few years has seen the bond market develop products that address social issues, with $59 billion issued to date1. It therefore stands ready to support the financing of projects aimed at addressing the Covid-19 threat.
We have already started to see a trend from the supranational community, with more than $7 billion of debt2 issued in the past three weeks in the guise of the IFC Social Bond, IADB Sustainability Bond, African Development Bank Social Bond and the Nordic Investment Bank Response Bond. In aggregate, these will support products and services contributing to health conditions and maintaining living standards for communities impacted by Covid-19, and we are particularly pleased to have supported them in the Threadneedle (Lux) European Social Bond Fund:
  • IFC Social Bond – The World Bank Group, of which IFC is a constituent, will help developing countries strengthen health systems, including better access to health services to safeguard people from the epidemic, strengthen disease surveillance, bolster public health interventions, and work with the private sector to reduce the impact on economies.
  • IADB Sustainability Bond – The IADB is offering up to $2 billion in resources that can be programmed to countries requesting support for disease monitoring, testing and public health services, as part of its coordinated efforts to fight the Covid-19 outbreak.
  • African Development Bank – The proceeds of these bonds will be allocated in line with the ADB’s social bond program to provide support and financing to countries and businesses fighting against Covid-19.
  • Nordic Investment Bank – Loans financed by NIB Response Bonds will support the provision of products and services contributing to health conditions and maintaining living standard for groups challenged by the Covid-19. More specifically, loans will target the financing of small and medium-sized enterprises which have been impacted by the virus, and large companies in the medical equipment and healthcare sector facing an increasing demand for equipment or services related to the pandemic.

The issues these specific-use-of-proceeds bonds will tackle fall within the ICMA Green and Social Bond Principles and target healthcare, access to finance for small businesses, employment and longer-term green infrastructure projects among others.

The current crisis also provides an impetus to widen the scope from green to social and sustainability bonds. For example, IFC has been issuing social bonds since 2017, raising $1.46 billion across 28 bonds as at 31 December 20193. Their latest social bond this month is a $1 billion issue4, thus almost doubling its social bond book overnight.

The global coronavirus pandemic continues to make these unique times in which to operate, but we are doing so as normally as possible. Beta has been falling, but with spreads much wider we are minded to add to it. Asset allocation favours credit at these levels. Our main focus, however, has been on liquidity management and cash is now up over 5.5%.

Yield on the European Social Bond Fund is less than the benchmark5, we are overweight utilities, agencies and supranationals, and we are slightly overweight duration – but have a curve position that would benefit from a flattening of yield curves value.

Turning to the market, it is illiquid and difficult but we have managed to add to positions and found the following firms attractive:

  • Carrefour – This French supermarket has established market-leading coronavirus measures such as priority checkouts, special timeslots for healthcare workers and vulnerable groups, a new telephone ordering service with free home delivery, and an online express delivery service.
  • DLR Green Bond – This is the first data centre real estate investment trust (REIT) to issue a green bond. We like it because it is enabling essential communication and economic activity (especially relevant during a lockdown) in a more environmentally friendly way.
  • TenneT Green Bond – TenneT provide transmission and distribution infrastructure which is an essential component of moving to a low carbon economy.

Our focus at this stage is on new issues as they tend to come at wider levels than secondary issues. Not only does this present an opportunity, but buying secondary runs the risk of a new issue coming and marking secondary markets wider.

20 April 2020
Simon Bond
Simon Bond
Director of Responsible Investment Portfolio Management
Share article
Key topics
Related topics
Listen on Stitcher badge
Share article
Key topics
Related topics

PDF

Social bond market responds to the coronavirus crisis

1 Data from Bloomberg, March 2020

2 Data from Bloomberg, March 2020

3 IFC, Social Bond fact sheet, November 2019

4 Global Capital, IFC brushes off vol with impressive social bond, 11 March 2020

5 ICE BofA Euro Non-Sovereign ICE / BofA Euro Corporate Euroland Issuers

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

9 December 2024

Rosalie Pinkney

Senior Credit Analyst

European banks: strong fundamentals and pockets of value

It’s a sector which we’re positive on, for several reasons ranging from regulation and valuations to fundamentals.
4 December 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – December 2024

Our fixed income team provide their weekly snapshot of market events.
26 November 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – November 2024

Our fixed income team provide their weekly snapshot of market events.
9 December 2024

Rosalie Pinkney

Senior Credit Analyst

European banks: strong fundamentals and pockets of value

It’s a sector which we’re positive on, for several reasons ranging from regulation and valuations to fundamentals.
9 December 2024

Steven Bell

Chief Economist, EMEA

Is the UK heading for recession?

There has been a major decline in optimism about UK economic prospects in recent months.
9 December 2024

Christopher Mahon

Head of Dynamic Real Return, Multi-asset

Consolidate with caution - Too much focus on scale could come at the expense of innovation

Chancellor Rachel Reeves is right to identify excessive risk aversion as a critical issue in UK pensions. Her solution is consolidation, but while boosting scale this way is helpful, it is no magic wand.
true
true

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Strategies

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Woman listens to music through headphones
Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium