Since their introduction in 2007, cumulative issuance of green bonds has grown to $3 trillion. Growth in the green bond market has outpaced the global bond universe, though green bonds still account for only 3% of the total. A persistent concern is that green bonds are harder to trade than ordinary bonds – a worry with real consequences, since poor liquidity raises borrowing costs and deters investors, ultimately weakening green finance as a policy tool.
Concern about green bonds rests on three beliefs: that sustainability-mandated investors buy and hold green bonds rather than trading them; that green bonds carry extra information costs because of greenwashing risks and evolving taxonomies; and that the variability of financed green projects fragments the market. All three suggest green bonds should be less liquid than bonds overall.
But is the worry justified? An examination of daily trading activity from 2020 to 2025 for 440 closely-matched green and conventional bond pairs from 254 issuers (Euroclear data) shows that in fact green bonds were traded more often than their counterparts – roughly 34% higher daily trading volume. Green bonds are traded on more days but individual transactions tend to be smaller (average trade size of €1.5 million versus €2.2 million for conventional bonds).
Rather than indicating a lack of liquidity, this finding reflects a more dispersed trading structure. When adjusted for the number of investors holding each bond, the green-bond trading advantage largely disappears, meaning that green bonds trade more frequently because they are held by a wider set of market participants. The average green bond in our sample is held by 37 investor accounts at Euroclear, compared with 34 for matched conventional bonds. A broader investor base increases the probability that buyers and sellers find each other on any given day.
This challenges the buy-and-hold narrative. Rather than being parked with sustainability investors who never sell, green bonds appear to circulate actively across a range of holders.
Liquidity concerns are most acute during market turbulence, when investors scramble to sell and thin markets can seize up. But a test of whether green bonds suffer disproportionate trading contractions when market-wide volatility rises (measured by VIX) shows they suffer neither a relative decline in trading frequency nor in total volume during stress episodes. However, the average trade size for green bonds increases by less than that of conventional bonds during volatile periods, consistent with the continuation of their characteristic small-transaction, broad-participation trading structure, rather than any sign of a liquidity dry-up. For policymakers, this is significant as a reassurance that green-bond liquidity is robust.
Not all green bonds trade equally, however. Two green-bond characteristics stand out as significant drivers of secondary-market activity.
First, third-party certification matters substantially. Bonds verified by an independent body such as the Climate Bonds Initiative (which checks that proceeds fund genuine environmental projects) show daily trading volumes roughly 189% higher than non-certified green bonds. Certification reduces the information uncertainty that can deter trading, making it easier for investors to find counterparties and execute larger transactions.
Second, the type of project financed also matters. Green bonds linked to common project categories (renewable energy, energy efficiency and clean transportation are the three most frequent) trade on significantly more days than bonds financing niche activities. A one-percentage-point increase in alignment of a type of project with other climate-related projects (for example funding green energy infrastructure instead of niche projects) is associated with a 2.4% increase in daily trading volume. Bonds that finance ‘standard’ projects attract overlapping investor groups, raising the chances that buyers and sellers can find each other.
For investors, these findings suggest that liquidity should not be treated as a barrier to allocating to green bonds within the investment-grade segment. The market is more active, and more resilient, than its reputation implies.
For issuers, liquidity is not simply an external market condition; it can be influenced by bond design. Seeking third-party certification and financing recognisable project types can broaden the investor base and support secondary-market activity.
For policymakers seeking to scale up green finance, the absence of structural fragility in green-bond markets is encouraging. Concerns about liquidity should not slow the expansion of green-bond issuance by sovereigns, agencies and corporations. The market has matured considerably: green bonds are actively traded, held widely and resilient under pressure.
