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T. Rowe Price believes investors are set to benefit from first green gilt

Commenting on Chancellor Rishi Sunak’s unveiling of the UK’s inaugural sovereign green bond, Quentin Fitzsimmons, portfolio manager of the T. Rowe Price SICAV – Global Aggregate Bond Fund, says:

“Green gilts are on their way. Despite initial concerns from the UK Debt Management Office, the political imperative to demonstrate commitment to the climate change agenda is trumping the more traditional sovereign issuer focus on liquidity of individual bonds and fungibility of cash-flows.

“Green gilts are likely to appeal to investors who believe it is the right thing to signal the imperative to look after the environment – and they could potentially be rewarded for doing so. Germany’s first green bund, sold last year, currently trades about five basis points through the identical 10-year cash-flow government guaranteed bond that was issued at the same time. While the German taxpayer did not get this initial benefit, as the premium was much smaller to start with, it is possible primary issuance could be cheaper for those that establish a comprehensive ‘green curve’.

“The launch of green bonds by governments is likely to raise the environmental and social qualities of these bonds. But question marks remain, as not all governments will apply the same standards when it comes to green credibility. For example, will a green gilt be judged ‘greener’ than a green bund, or vice versa? The devil will be in the detail. Nevertheless, the prospect of more countries issuing green bonds will likely improve their overall quality and eligibility.”

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