Dynamic impact of the US yield curve on green bonds: Navigating through recent crises

Document Type

Article

Source of Publication

North American Journal of Economics and Finance

Publication Date

9-1-2024

Abstract

We examine the effect of the US yield curve on the global green bond markets at the forefront of the climate change fight. For this purpose, we compute three components (level, slope, and curvature) of the US yield curve based on daily data of the treasury yields with several maturities from January 2009 to June 2022 and employ country-level S&P green bond indices. Our dynamic network analysis shows that the level component of the yield curve is more influential in transmitting return and volatility shocks to green bonds, while curvature is primarily absorptive. The European, the US, and Hong Kong green bonds are the leading players in shock propagation. Both return- and volatility spillovers are time-varying and remain high during periods of systemically important events, especially COVID-19 and the Russia-Ukraine war, supporting the Global Financial Cycle Hypothesis. The war also changes the net behaviors (transmitter versus receiver) of the components and the indices. Investors and issuers of green bonds are advised to keenly observe the shape of the US yield curve and systemic events for better decision-making regarding investment horizons and contagion risk management.

ISSN

1062-9408

Publisher

Elsevier BV

Volume

74

Disciplines

Business

Keywords

Green bonds, Return and volatility transmission, Russia-Ukraine war, Term structure of the US yield curve

Scopus ID

85196854483

Indexed in Scopus

yes

Open Access

no

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