Extra regulatory requirements, fewer financial incentives and the risk of being accused of greenwashing reduce clients' interest in sustainability-linked loans (SLL), which fell even more than green loans. EU's new rules require companies to back every sustainability statement. Even clean energy companies prefer to get funding through regular debt.

Demand for Europe’s debt sales is running at a record pace as investors clamor to lock in attractive yields before central banks start cutting rates. Issuers from across the ratings spectrum are attempting to get deals done at the start of the year. Because of the swollen public debt, investors want a premium for holding long-term bonds in particular.

The new regulations will require banks to set aside more capital. US banks currently have capital requirements from $9 to $13 for every $100 in risk-weighted assets. Under the new rules, they will need to add $2. This will affect lending, including to green energy projects. Banks will look to work alongside other corners of the finance sector to finance project.

Germany will cease sales of inflation-linked bonds starting next year, the country’s Federal Finance Agency said. Germany has four outstanding inflation-linked bonds totaling €66.25 bln with remaining maturities between 2.5 and 22.5 years. The nation’s outstanding inflation-linked securities will continue to be tradable on the open market.

High inflation will raise interest payments on these of bonds by a third to £92 bln over the next 5 years, on top of the £89 bln extra for the last 2 years (3.4% of GDP). The UK has 25% of debt linked to inflation, Italy is second with 12%. The reason is demand by UK pension schemes eager to buy assets that match their inflation-linkedin payments.

Germany’s constitutional court ruled against reallocating the unspent money borrowed during the coronavirus pandemic for the energy transition, which will affect government plans. The constitution places limits on government borrowing. The pandemic allowed emergency borrowing, but using that money now for other purposes is unconstitutional.

How soon will the ECB shrink the €1.7 tln stash of bonds it bought during the pandemic (the PEPP)? It is already selling bonds from the larger portfolio amassed during the 2015 fear of deflation. Around €18 billion a month come due under PEPP. Some experts expect the ECB to announce in December that reinvestments will be lowered as early as March.

Pension funds are resisting a UK government push to invest up to £50bn in projects and business to support economic growth, citing lack of suitable investment opportunities and concerns about higher risk. They want tax free dividends on investments in UK companies and call for the government to ensure a stream of “high quality” investment assets.

The bank was sitting on $105.8 bln of losses on a $614 bln portfolio of mostly agency mortgage securities. Rising rates have translated into a decline of about 3% in the value of agency mortgage securities. The held-to-maturity portfolio was valued at less than 85 cents on the dollar. The overall portfolio has a weighted average life of about eight years.

Investment-grade borrowers have sold $12 bln of convertible bonds this year, more than 30% of total issuance. Convertible bonds can be swapped for equity if a company’s shares rise to a specific price. They allow companies to borrow at 2-3 percentage points cheaper rate than a traditional bond. The market used to be dominated by junk-rated companies.

After the government's changes to climate policies, it sold £3 bln of bonds due 2033, with a demand 2.56 times as high. The difference between the yield at the weighted average price and the lowest accepted price (a.k.a the tail) was 1.3 basis points, up from 0.2 in the previous sale. That suggests the UK had to accept a concession to sell the bonds.

The state, which renationalised EDF, is at odds with boss Luc Rémont, particularly over the way nuclear power prices are regulated, just ahead of its biggest reactor construction programme. EDF has net debt of €65bn with annual spending needs of €25bn per year, up from €16bn-€17bn in the past, and which EDF does not want to finance with more loans.