Determinants of project bond prices – Insights into infrastructure and energy capital markets

Abstract

Securitized project finance still holds considerable uncertainties for issuers and investors alike. Researching the price determinants of project bonds, this paper aims to provide valuable insights into market price patterns and market price risk for market participants in general, and investors and issuers in particular. Examining co-movements of project bond prices on the one hand and of traditional corporate and sovereign bonds on the other, we find that they tend to move in line. Although investors' time horizons differ significantly, prices of all of the bonds analyzed turned out to be driven by the same macro- and microeconomic factors, whereas particular movements of project bond prices are primarily related to the project's sector (or the project bonds tenor), so that infrastructure project bonds (or longer tenor bonds) react more sensitively to macroeconomic fluctuations than energy project bonds (or medium-term project bonds). The results also confirm the price impact of investors' increasing preferences for green assets.