UK’s first green bond issuance in five years meets strong investor demand
In markets, timing is everything and at first it did not appear to favour the UK’s Debt Management Office (DMO). Having come out last week with its intention to launch a green gilt, bond markets were off to a volatile start this week as fears over the potential inflationary impact of the Iran war triggered a rise in borrowing costs.
However, bond markets appeared to calm down as oil prices stabilised, offering a more favourable entry point for the issuance of the green bond, as Jonas David, research director at the Anthropocene Fixed Income Institute, explained: “The developments in the Middle East resulted in financial market stress that also impacted gilts. The plans to issue a green gilt this week had been communicated a while ago and overall primary market activity picked up today as market sentiment improved overnight. Accordingly, this created an opportunity to go ahead with the transaction.”
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With the initial price guidance ranging from 10.75–11.25 basis points above the 4¼% Treasury Stock 2036, final pricing closed at 4.7167% at the tightest level of guidance.
Jessica Pulay, chief executive officer at the DMO, said today’s issuance “underscored the UK government’s longstanding ambition to build out a green yield curve”.
“This transaction has been very well supported by a significant number of orders from a broad, diverse and high-quality set of investors – including those who have not previously participated in primary gilt issuance,” she added.
Overall, the DMO plans to issue some £12bn in green gilts for the 2026/2027 financial year. Today’s issuance brings it halfway towards this target.
Use of proceeds: nuclear inclusion
This green gilt issuance is the first to be released under the UK’s updated Green Financing Framework, which includes nuclear projects as eligible expenditure — a change that has drawn criticism from some investors, including Rathbones, which criticised the move in an interview with Bloomberg.
However, the strong order book and tight spreads suggest that overall investor demand remained robust, according to Jonas David.
“Obviously, it’s hard to say how the book would look without nuclear as eligible expenditure. Notwithstanding some investors with reservations, nuclear energy appears less controversial than a few years ago. Historically, clean transportation was responsible for the highest share of expenditures, and it will likely remain the largest category,” he added.
Kris Atkinson, fixed income portfolio manager at Fidelity International, said the manager had not participated in this specific auction round, given persistent volatility and his fund’s focus on corporate debt, but that he was keeping an eye out for opportunities in secondary markets.
The inclusion of nuclear would not be an obstacle, he added, describing it as a “necessary evil” on the road to net zero, though concerns about the costs of nuclear waste disposal remained.
Overall, he welcomed the UK’s renewed commitment to issuing green bonds:
“Having more of a curve in the green space would be beneficial for the UK. This demonstrates that there is certainly plenty of demand,” he argued, adding that the issuance of blue bonds could be another opportunity for the government to consider.
