UPDATE 2-Canada's inaugural green bond issue seen attracting international buyers

(Adds analyst quotes and details)

By Fergal Smith and Ismail Shakil

March 21 (Reuters) - Canada's planned issuance of its first green bond this week is expected to attract international as well as domestic investors and could help speed up investment in climate-friendly infrastructure projects.

The C$5 billion ($3.97 billion) bond is expected to be priced on Tuesday at a yield of about 2.5 basis points more than Canada's June 2029 bond, indicative terms provided to investors showed. It would mature in December 2029.

"The sheer size of this offering is notable in that it speaks to the healthy international participation," said Ryan Goulding, fixed income analyst at Leith Wheeler Investment Counsel Ltd.

The deal "continues the impressive trend we’ve seen from public issuers in Canada," Goulding added.

Some Canadian provinces, including Ontario and Quebec, the two most populous, issued bonds previously in the fast-growing green debt market.

The upcoming deal is likely to set a benchmark in the Canadian market, increasing liquidity. It could also spur a faster transition to a greener economy, something that is expected to require trillions of dollars in investment.

Canada is the world's fourth-largest oil producer. It has pledged to reduce emissions to 40%-45% below 2005 levels by 2030.

"Mobilizing capital will be crucial to Canada meeting both its 2030 emissions reduction target and its goal of achieving net-zero emissions by 2050," Canada's Department of Finance said in a statement.

Twenty-one sovereign green bonds were priced in 2021, with France, Germany and the U.K. among the leading issuers in the market, according to the investor-focused Climate Bonds Initiative.

Canada says the bonds will support its "green transition by offering investment opportunities in both climate and environmental measures." ($1 = 1.2609 Canadian dollars) (Reporting by Fergal Smith in Toronto and Ismail Shakil in Bengaluru; Editing by Bernadette Baum and Leslie Adler)