Global green bond sales are expected to maintain a strong start to 2024 as an imminent fall in interest rates is projected to create a favorable environment for issuers and investors.

Green debt sales in the world jumped 40.7% year over year to $173.08 billion in the January–March period, the largest quarterly issuance in more than four years, according to data from the Climate Bonds Initiative (CBI), a UK-based green bond tracker. European issuers accounted for more than half of the total green bonds sold in the first quarter.

"Interest rates would move lower from the long-term perspective," said Takahide Kiuchi, executive economist at the Nomura Research Institute. "That should be favorable for the [green bond] market."

Economists expect the global interest rate cycle to turn later in 2024. Most global central banks, led by the US Federal Reserve, are expected to start cutting rates after inflationary pressures abate. Rates have stayed higher than initially expected as central banks wait for more evidence that inflation is under control. After that, the focus is expected to shift to economic growth.

The US, which ranked as the top issuer by country, sold $26.06 billion of the green debt in the first quarter, CBI data shows. Yields in the US have cooled somewhat after the benchmark 10-year Treasury bond's yield spiked to more than 5% in October 2023. The benchmark yielded 4.47% on May 5.

"The US yields have risen recently but those could move lower later this year or next," said Hiroshi Kubotani, a senior economist at NLI Research Institute. "Investors would snap up green bonds when the yields change its course."

China, which came fourth in global green debt issuance ranking, offered $9.05 billion of internationally aligned bonds, a 46% decline year over year. Still, China retained its position as Asia's No.1 seller of green bonds.

European issuers sold $105.79 billion of green bonds during the quarter, a 75% jump from the same period in 2023. New standards for green bond sales in Europe are expected to support the market.

The new norms, to be brought in January of 2025, are expected to improve the transparency, comparability and credibility of the green bond market, helping assess the environmental, social and governance stance of issuers. The new rules require deals to be 85% aligned with the EU's green taxonomy as a minimum.

In contrast with EU, the US and China, Japan is expected to embark on additional rate hikes after ending its negative rate policy in March to contain higher import prices driven up by the depreciation of the yen against the dollar.

"Investors may rush to the [green bond] market" before the Bank of Japan raises rates slowly over time, Nomura's Kiuchi said.