Two of the hottest trends in bond markets—green bonds and electronic trading—are coming together.
Trading platform MarketAxess Holdings Inc. is changing its systems to help traders find green bonds, aiding investment managers’ scramble to offer their clients fixed-income funds that meet environmental, social and governance guidelines.
Sales of new green bonds, which governments and companies issue to fund programs like renewable energy facilities and mass transport, rose by more than 20% last year, but the amount of securities available for trade remains small.
“Green bonds are often bought by insurers and pension plans who don’t sell them,” said Matt Brill, head of U.S. investment-grade credit at Invesco Ltd. “They have scarcity value because there’s not enough of them out there to satisfy demand.”
Trading of the securities reported to U.S. regulators almost doubled in 2019 but still only accounted for about $57 billion of the trillions of dollars in government and corporate bonds that changed hands in the U.S. last year, according to data from MarketAxess and the Securities Industry and Financial Markets Association.
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MarketAxess hopes to facilitate more trading by creating a green-bond tag for bonds on its platform with green certifications from companies like IDC and Refinitive Holdings Ltd. That will allow traders to respond faster when green bonds hit the market and to identify those similar to conventional bonds that their portfolio managers want to replace.
Bloomberg also offers green-bond screening functions on its trading platform, a person familiar with the matter said.
“We’d be supportive of anything that provides liquidity and transparency into what is a green bond and what is not,” said Bonnie Wongtrakool, global head of ESG investments at Western Asset Management, which plans to launch its first ESG bond fund this year. “Liquidity is king.”
To spur more green trading, MarketAxess has committed to plant five trees for every $1 million of green bonds traded on its platform through environmental organization One Tree Planted. The initiative, which costs about a dollar per tree, will transfer green credits from the planting to the MarketAxess clients involved in the trades, a person familiar with the matter said.
Write to Matt Wirz at matthieu.wirz@wsj.com
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