Environmental gilt

10 minute read

After unprecedented volatility in the sterling bond market, the Bank of England tapped their 30-year green gilt, while also stepping in to stabilise the market, beginning a purchase programme to support long-dated yields.

We ask ourselves how corporate sterling green bonds performed amid this volatility. We observe little greenium in our featured issuers, and little differentiation in behaviour, both in terms of performance but also volatility.

As green bonds have identical credit exposure and a larger investor base, we prefer owning green debt at flat spread levels, and consider this weakness as a potentially attractive entry point. Sterling yields have been climbing throughout the recent high inflation period, responding to anticipated and realised rate rises.

Movements were accelerated as a new Chancellor of the Exchequer announced a series of tax cuts last week without an accompanying economic forecast from the Office of Budget Responsibility. The general market background remains weak with risk for sale across asset classes, as the impact of persistent inflation, energy insecurity, and interest rate rises continue to be absorbed.

We want to examine the recent performance of UK sterling bonds, particularly from green bond issuers, to understand any implications for green bond investors. We want to test if green bonds have remained resilient over this period, or exhibited differing levels of volatility.

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