During the Covid-driven market sell-off, bond ETFs traded at discounts to their net asset value. ETF issuers trade only certain bonds with market makers, who are reluctant to buy more of them on the market, reducing their liquidity. This is suggested by a new paper, after both the IMF and the BIS questioned the impact of ETFs during stressed markets.

The asset class is seen as low risk but offers the best returns in years. Investors want to lock in historically high yields. They no longer need to push into riskier debt in search of decent returns. $182 billion investment-grade bonds were issued in the US and $246 billion in Europe on the assumption that bonds hit “peak yields”, but this is now in doubt.

Higher interest rates have increased interest in so-called liability management to reduce debt and cash flow pressure on companies. Liability management includes suspending dividends, selling assets, amending debt documents and discounted bond buybacks. Italian energy company Enel plans to sell assets worth €21 billion to reduce its debt ratio.

Barclays Plc expects its competitors to lure savings customers with higher interest rates. Advances in online banking and the prevalence of fintech upstarts have made it easier to switch accounts. The jump in UK interest rates to 4% in recent months are accelerating years of work by policymakers and startups to challenge the UK’s big 5 lenders.

Last year, $60bn of sustainability linked bonds (SLBs) were issued worldwide, a 37% decline on 2021. Issuance has fallen amid ‘greenwashing’ concerns. Interest rate increases, if a company does not meet its targets, are low. Unlike green bonds used to finance specific projects, SLBs have not benefited from greenium (a lower borrowing cost).

The law empowers local authorities to create preferred go-to and no-go areas for renewable projects, and to financially benefit from them. Energy company Neoen said the definition of go-to zones will take years to emerge and put many developments on hold. The law also introduces a “visual saturation” criteria, which will effect new wind farms.

Although central bank interest rates have been rising, Spanish banks have kept interest rates on term deposits on 0.4%. So when the word got out that 3% can be earned on 12-month treasury bills, demand soared. Online purchases reached €400 million in January, as much as the total for 2022, and pensioners queue in front of the Bank of Spain.

High materials costs and slow approvals for new wind power projects reduce profitability. Danish wind farm developer Orsted announced a €335 million impairment on a US offshore project due to “unprecedented cost inflation”. Supply-chain issues, inflation, competition from China and lower demand drove turbine makers to cut jobs last year.

For a few hours last week, British consumers were asked to turn the lights off. There was a financial incentive offered. Less reliable renewable sources and the switch to electric cars and home heating will make this even more common. Home owners might hand over some control of their power use to suppliers, allowing them to switch off things remotely.

Turbine failures are on the rise in Europe and North America. This effects turbines of all three largest manufacturers: General Electric, Vestas, and Siemens Gamesa. A recent report says production issues may be to blame for the mysterious increase in failures. This issue comes on top of uncertain supply chains and fluctuating material pricing.

Global sales of ethical debt are set to suffer their first drop this year. The market went from “greenium” to underperforming conventional debt. ESG deals that took weeks to structure in 2021, now take months, and money managers take longer to vet the bonds. Europe is expected to lead the sector, but the EU has failed to reach a deal to fight greenwashing.

This year’s devastating losses for bond holders may continue in 2023. Interest rates will rise further and the ECB will shrink its vast crisis-era debt holdings just as governments ramp up issuance. Germany’s 2-year note touched 2.50%, its highest since 2008. The spread between German and US 10-year yields has narrowed the most since March 2020.