Amidst discussions of an AI bubble, recent warnings in financial newspapers have brought the bond market back to center stage. Both The Wall Street Journal and The Financial Times featured weekend stories warning about surging yields and bond ructions, reminding observers of the vital centrality of the bond market to global prosperity.
The role of the bond market is explored in A Fabulous Debt, a new book by Robin Wigglesworth, who edits the Financial Times markets blog Alphaville. Wigglesworth traces the history of the tradable loan, which was accidentally invented by the Venetians in 1171 to pay for a war with Constantinople as a forced levy sweetened by annual interest payments. The financial instrument later evolved through Amsterdam’s Dutch East India Company and into modern America, where Thomas Jefferson financed the Louisiana Purchase using bonds sold by the London merchant bank Baring Brothers. The book also recounts the tale of Scottish adventurer Gregor MacGregor, who invented a fictitious country named Poyais and successfully sold its bonds in London.
The Evolution of Accountability and Global Finance
According to Wigglesworth, the fundamental lesson of the bond market is that transparency pays. Great Britain was able to borrow more cheaply than its rivals because parliament controlled the purse and published its accounts. Nathan Mayer Rothschild, a London-based banker who brought Prussia, Spain, Russia, and new Latin American republics to the London market after Waterloo, subsequently cajoled other governments into opening their books to secure comparable rates. This accountability helped forge the modern world, complete with the financial muscle necessary to conduct global wars and support leviathan states.
Tech Giants and Modern Bond Bust Fears
While discussing current market conditions, Wigglesworth notes that the trend lines are now definitely pointing in a suboptimal direction.
Rather than focusing exclusively on a potential artificial intelligence stock market bust, he raises concerns regarding tech giants issuing more than $500 billion of bonds this year to fund the construction of data centers.
Despite these developments, Wigglesworth offers reassurance regarding the immediate outlook, stating it is not an imminent fabulous crisis Not yet, anyway.
