Commenting on the UK’s inaugural ‘green gilt’ sale, Quentin Fitzsimmons, portfolio manager of the T. Rowe Price Global Aggregate Bond Fund, says:
“We were not surprised by the strong level of demand, but clearly this was an exceptional outcome for the UK government. There is every reason to expect longer maturity issuance will also do very well, given the nature of pension fund liability-driven demand present in the UK market.
“The new bond appeared to us to be cheap to the curve and attractively priced against similar recent green sovereign issuance, in Germany and Ireland for example, where we have seen those bonds trade at lower yields than adjacent bonds on the yield curve.
“We would expect the UK government to build a ‘green’ yield curve over time and note a sensible framework for proving the how the proceeds will be used. The challenge for all issuers will be whether preferences mean that non-warranted green issuance becomes harder to draw investors and more expensive.”