Analysis of Green Bond Yields in Different Economic Regimes: High and Low Interest Rates

In recent years, green bonds have emerged as a significant financial instrument, attracting considerable attention as a means of financing environmentally sustainable projects. This research aims to examine whether there is a statistically significant difference in the returns of green and conventional bonds in international markets under two different stages of the economic cycle, low and high interest rate regimes. The study was conducted based on the bond matching method, where bonds with identical characteristics are considered, except for one, whether or not the bond is green. The results of this study demonstrate the existence of a green premium in both economic regimes. Additionally, an increase in the green premium was identified in the regime of positive interest rates. Considering the observed differences in the green premium across different sectors, it seems that the theory of lower risk of green bonds best explains the reason for the greenium.