Investor Alert

London Markets

Sept. 21, 2021, 10:02 a.m. EDT

Investors snap up first U.K. government green bond at a ‘greenium’

By Steve Goldstein

Bond investors on Tuesday tripped over themselves to land the first U.K. government green bond.

The U.K. gilt yielding 0.875% maturing in 2033 had £101 billion ($138 billion) in orders for the £10 billion sale, according to the Debt Management Office, priced at a yield spread of 7.5 basis points above the reference gilt.

The U.K. said it will allocate proceeds to expenditures that meet environmental eligibility criteria, such as clean transportation and research and development. Expenditure on fossil fuel exploration, nuclear power, weapons, tobacco, gaming, palm oil industries and alcoholic beverage manufacture will be excluded.

The U.K. will publish an annual report on how the funds are being allocated, as well separate reports on the environmental and social impact.

According to BMO Asset Management, there was more than $1 trillion in global green bond market issuance last year.

“Disappointingly, the U.K. accounted for less than 5% – not a market-leading percentage. But, as the U.K. government has been late to market, its issuance is likely to grow significantly. And the hope is that this will create impetus for corporates to issue more green bonds; more financing to go towards sustainable initiatives,” said Keith Balmer, a BMO portfolio manager.

The FTSE 100 (FTSE:UK:UKX) , which outperformed other global markets on Monday when worries about China Evergrande roiled stocks, gained 1.3%.

Kingfisher (LON:UK:KGF) , the operator of home-improvement chains including B&Q, dropped 5%, even as it reported a 23% rise in like-for-like sales, lifted its second-half sales forecast, increased its dividend and announced a £300 million stock buyback plan. The stock is still up 29% this year.

Link to MarketWatch's Slice.