Social Bond Market to Help Refugees Displaced by Russia’s War

(Bloomberg) -- Refugees fleeing Ukraine following Russia's invasion are set to receive a new source of support from Europe's debt market.

The Council of Europe Development Bank is raising 1 billion euros ($1.1 billion) of social inclusion bonds that it plans to disburse proceeds from quickly to countries taking in large numbers of refugees, according to a person familiar with the matter, who asked not to be identified because they're not authorized to speak about it.

The offering dwarfs the almost 2.6 million euros of additional grants already handed to its member states to help them deal with the massive displacement of people from Ukraine. It had earlier approved a 150,000 euro grant to the International Organization for Migration Slovakia to support refugees and third country nationals from Ukraine.

A spokesperson for the Council of Europe didn't immediately respond to a Bloomberg News request for comment by email.

The move marks a new milestone in the burgeoning market for ethical finance, which has already seen debt deals to help fund nations' recovery from the global coronavirus pandemic alongside so-called ‘catastrophe' bonds protecting against events such as volcanic eruptions and global disease outbreaks.

So-called ESG -- environmental, social and governance -- debt deals comprised a record 27% of all Europe's market-wide publicly-syndicated issuance in 2021, according to data compiled by Bloomberg. This year it's about 18%.

‘Clear Guidance'

“There needs to be clear guidance on how proceeds will be used,” said Larissa de Barros Fritz, fixed-income strategist at ABN Amro. She said issuers need to make sure they are “aligned with current market standards.”

The Council of Europe Development Bank will offer seven-year notes through its existing Social Inclusion Bond framework, which stipulates that funds can be used for social housing, education and vocational training, health and social care and supporting businesses and job creation. The offering is set to price later Wednesday.

Solving the problems of refugees is another aim at the organization's core, as the development bank was set up amid the political upheavals and mass civilian displacement that followed the Second World War.

In its most recent social bond framework, covering disbursements made in 2019, the organization said it allocated 2% of loans for refugee aid. The biggest share of its disbursements -- 37% -- went toward financing micro, small and medium-sized enterprises to help create and preserve jobs.

Ukraine Aid

Guidance from organizations such as the International Capital Market Association can “provide more confidence to investors and can serve as additional factor to incentivize other issuers to follow the same path,” de Barros Fritz said.

Much of European aid to Ukraine since the Russian invasion on Feb. 24 has been directly from individual countries, some of it in the form of military hardware.

Ukraine itself has also been raising debt to fund its military resistance to Russia's invasion. It is using its existing government bond auctions to issue ‘war bonds,' raising about $1.2 billion from six weekly auctions.

Elsewhere in credit markets:

EMEA

Eight issuers including Portugal and Volkswagen Financial Services NV will raise at least 4.3 billion euros equivalent in the region's primary market on Wednesday.

Germany's Schuldschein debt market is enjoying its best-ever start to a year as companies from as far as India seek out protection from global volatility. Sales of Schuldschein debt jumped 43% in the first quarter to 6.4 billion euros, the biggest increase in data going back to 2016
The gap between high-quality company debt and their wobblier investment-grade counterparts in Europe is at its widest since late 2020. Some investors see this as a potential pool of bargains among firms most likely to defend their rating, but it also comes with a risk of underperformance by the lower-rated bonds
The rate of defaults among European high yield bonds rose in March for the first time in 11 months on the back of small debt restructurings, according to strategists at JPMorgan Chase & Co
Retailer H&M has secured a 1 billion-euro sustainability-linked revolving credit facility, which is tied to three environmental-based KPIs

Asia

The specter of a quick runoff in the Federal Reserve's balance sheet hit Asian credit investors' sentiment Wednesday, threatening to end the region's longest rally in dollar corporate bond spreads since August.

Yield premiums on Asian investment-grade notes in the U.S. currency widened by at least two basis points, according to traders, and are poised to snap an eight-day winning streak, according to a Bloomberg index
Chinese high-yield dollar bonds rose at least 2 cents on the dollar, credit traders said, led by gains among developers' debt. Such firms' stocks also outperformed Wednesday

Americas

Five borrowers navigated a softer backdrop on Tuesday to sell more than $6.5 billion of bonds in the U.S. high-grade market.

Activity in the high-yield market is also picking up, as issuers take advantage of a rally that has sent yields below 6% for the first time in nearly a month on a rebound in demand. The revival follows the slowest start to the year for junk-bond sales since 2016, according to data compiled by Bloomberg
Fortescue is the latest issuer to announce plans for a new junk bond deal; it will hold an investor call on Wednesday for a $1.5 billion two-part sale
Meanwhile, stock and credit markets are too calm ahead of the Federal Reserve's planned quantitative tightening. Interviews with investors showed many suspected risk assets had yet to account for such a sharp pullback from historically easy money