On the go: The second issuance of the UK’s green gilt has raised a further £6bn, the Treasury has said, but analysis of the transaction suggests that the ‘greenium’ has widened in secondary markets.
The UK’s second green gilt is a 32-year bond, maturing on July 31 2053, making it the sovereign green bond with the longest maturity in the world.
The order book for the issuance was 12 times oversubscribed, according to the Treasury.
The first issuance raised more than £10bn in September. The combined size of the two transactions now means that the UK is one of the top three biggest national issuers of green bonds in the world.
Green gilts have been described by experts as offering a “low-cost and simple governance approach” to schemes looking to increase their alignment to the Paris Agreement goals.
The new 2053 green gilt was issued with a 1 basis point lower yield than the reference 2052 non-green gilt. However, Robert Gall, head of market strategy at Insight Investment, said that the latest offering’s higher coupon “means that this difference in yield is slightly misleading”.
“Adjusting for the coupon difference, the market estimated that c.1bp above the reference 2052 non-green gilt would have been an approximate fair value if the green gilt was issued at around the same price as a non-green gilt. As a result, the green gilt was issued at a c.2bp lower yield relative to this fair value level,” he said.
“This is slightly higher than the greenium of the first green gilt, which was issued at a c.1.5bp lower yield or greenium relative to fair value.”
Pensions Expert previously reported on industry concerns over the second issuance’s greenium — something that may deter some pension schemes from investing.
But Gall noted that the greenium has already increased in value.
He explained that the initial trading of the 2053 green gilt indicated “that the greenium has widened by c.2.25bp to 4.25bp in the secondary market”.
“While the overall order book was smaller than the 2033 green gilt, this was to be expected given the longer 2053 maturity appeals to a smaller group of investors,” he said.
“However, relative to the size of the issue demand was 12 times the issued size compared with 10 times on the first green gilt revealing the strong demand.”
