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September 23, 2014

Investors gobble up Mass. 'green bonds'

Massachusetts treasury officials last week were inundated with $1 billion in buy orders for so-called “green bonds,” helping the state to obtain favorable interest rates for $350 million in the bonds.

Under Treasurer Steven Grossman, Massachusetts last year became the first state or city in the United States municipal bond market to issue green bonds, which appeal to investors interested in financial projects with environmental benefits. The latest bonds, for example, will help pay for the New Bedford Marine Commerce Terminal, a project officials hope will position the region for success in the wind energy sector.

State treasury officials said they have followed the lead of the World Bank, which since 2008 has raised the U.S. equivalent of $6.7 billion in green bonds, including $3 billion in fiscal 2014, through 70 transactions and 17 currencies. World Bank green bonds have helped finance wastewater management in China, for example, as well as irrigation system improvements in Tunisia and the Dominican Republic, and energy efficiency investments for poor households in Mexico.

State treasury officials opened the recent bond offering first to individual investors, who placed $260 million in orders over three days last week. Institutional investors then scooped up the remaining bonds on Thursday. According to Colin McNaught, assistant treasurer for debt management,, demand for the bonds far outpaced supply as potential investors were ready to buy $1 billion in green bonds.

McNaught said the District of Columbia and New York state have issued green bonds, and California began a green bond sale on Friday. The bonds have helped Massachusetts diversify its investor base, he said.

"We're starting to hear that a lot of states and cities are going to be issuing green bonds," said McNaught.

In addition to the $350 million in green bonds, Massachusetts treasury officials last week refunded $429 million in outstanding bonds in a refinancing transaction that officials say will save taxpayers $45 million in long-term interest costs.

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