UK’s first green savings bond low

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The UK’s first green savings bond will offer buyers a lower return on investment than competing products, as the government relies on investors’ environmental commitment to drive demand.

National Savings & Investments, the government-backed savings plan, said its first green bond, which goes on sale on Friday, will carry a fixed rate of 0.65% over three years.

Dubbed a ‘guilt-free gilt’, after the benefit of traditional UK debt certificates, the bond proceeds will finance government spending on environmental projects such as investing in renewable energy, green transport infrastructure and prevention pollution, NS&I said.

“The UK is already a global leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure manner,” said Chancellor Rishi Sunak, who said is pushing for the launch of UK green bonds to signal the UK’s commitment to environmental finance ahead of the COP26 climate conference next month.

However, investment analysts have warned that green bonds could struggle to win demand from rate-sensitive retail investors if the return on supply is lower than savers can find elsewhere.

“If the rate is below 1.8%, the bond’s green credentials and its NS&I brand and support are going to have to do the heavy lifting rather than the rate,” said Laith Khalaf, head of asset analysis. investments at AJ Bell.

Khalaf calculated last month that it would cost the Treasury £ 210million a year to match the main bank savings bond rate of 1.8%.

In the past, NS&I Savings Bonds generally offered higher rates relative to the cost of government borrowing in bond markets. But he ditched some of his more popular savings products two years ago, saying the very low yields on gilts made it much cheaper for the government to raise money from large investors rather than individual savers. .

NS&I’s market share fell after cutting rates for more competitive 1.15% retail savers on its popular 0.01% income bond.

Becky O’Connor, head of pensions and savings at Interactive Investor, said green bonds could “provide a feel-good factor for savers” but the rate was “not competitive”.

The green bond rate is not only much lower than the best rates on retail savings products, it also means savers would get less than the yields offered to investors in government bonds, the three-year government debt. currently reporting 0.68%.

The launch comes at a time when bond yields have risen rapidly as investors react to hints from the Bank of England that it could raise interest rates as early as next month. A month ago, the three-year-old gilt was yielding just 0.25 percent.

The prospect of higher rates could also weigh on retail investors’ enthusiasm for green savings bonds, which require them to lock in their money for three years.

Some conservationists have criticized the government’s green debt plans as a “public relations exercise.” They argue that the government should tap the debt markets at the best available rates to fund its environmental plans.

The UK government also recently launched a green borrowing program aimed at financial markets, raising £ 16bn through two sales of green gilts. Bond investors have so far been willing to pay a small premium for these bonds – thereby accepting a slightly lower yield – compared to conventional government debt.

NS&I said the Green Bonds will be on sale for at least the next three months and open to investments of between £ 100,000 and £ 100,000.


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