How Sovereign Sustainable Bond Issuance Shakes Up the Corporate Sustainable Bond Market?: Evidence From Asian Markets

Abstract

This study examines how sovereign sustainable bond issuance affects the yields and liquidity of corporate sustainable bonds in eight Asian markets. Using panel vector autoregression (VAR) and daily data from 2018 to 2024, we find that initial sovereign sustainable bond issuance improves corporate sustainable bond liquidity and reduces yield spreads in the medium term. We further find that this reduction is primarily driven by a persistent decline in greenium rather than a lower risk premium. Corporate sustainable bond issuance rises post-sovereign issuance, with more diverse issuers entering the market. Additionally, fund flows into ESG mutual funds increase, reflecting stronger demand for sustainable assets. Our findings highlight the positive role of sovereign issuance in scaling up private sustainable finance. JEL Classification: G12, C33, E43, Q54.