Social Bonds and the “Social Premium”

Although Social bonds (SB) have witnessed an unprecedented increase especially since the outburst of the Covid-19 pandemics, their performance vs. conventional bonds (CB) has not attracted much attention. The aim of this paper is to test the existence, the sign and the determinants of a “social premium”, defined as the yield differential between a SB and an otherwise identical CB. To this end we set up a sample of 64 SB aligned with ICMA (International Capital Market Association) principles and 64 matched CB, from October 2020 to October 2021 so as to focus on the peak of SB issuances. We run regressions based on the idea that daily yield differential between SB and CB may be determined by differences in un-matched characteristics. Based on the FE specification, which turns out to be preferred vs. OLS and RE, a few main results emerge. First, as for the determinants, the difference in liquidity and in volatility turn out to be significant: they are, respectively, negatively and positively correlated with the yield differential. Second, on the whole sample the analysis of the fixed effects, which represent the social premium, proves the existence of a significantly positive social premium (1.242 bps). This result is robust to outliers, but differences emerge on subsamples. Overall, the small magnitude of the social premium emerging from our analysis over the latter two years would point to a (perhaps more mature) phase of the SB market, whereby the social feature does not make otherwise comparable bonds any different in terms of yield