"Everything flows from bonds"
Robin Wigglesworth, editor of the Financial Times’ finance blog, Alphaville, has put the spotlight on the overarching influence of the bond market in shaping political history, the financial economy and human advancements in his new book, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World. He spoke with Kevin McPartland, Crisil Coalition Greenwich Director of Market Structure & Technology Research, about his new book, the history of the bond market and whether history is repeating itself via the current AI financing boom.
Bonds, which Wigglesworth describes as “the original financial technology,” have funded everything from wars and empires to the railways and now, data centers. They’ve even grown larger than the entire global banking system.
That realization, after a deep dive into the Bank for International Settlements (BIS) data from the 1940s, was Wigglesworth’s impetus for writing the book. “That just showed that [while] we have this idea of capitalism and banks at the center of it, we're really looking at a two-part engine. I'd argue bonds are taking over, and that's where we're seeing the magic of credit extension these days.”
From Venice to Wall Street
Wigglesworth’s sweeping history, though, begins with the Venetians, who created bonds as a war tax with a tradeable receipt to finance their battle against Constantinople. “The bond is the most magical dimension of all the financial stuff [that came] out of Renaissance Italy,” he stated.
But if the Italians invented the wheel, the Dutch “showed what you could do with a couple of them,” using them to finance their war of independence against the Spanish empire—just as the Americans would a century later—and to build the dike network that dried out the “bog of Europe.”
The Dutch William of Orange then imported bonds to England when he became its sovereign head. Dutch finance brought in “hyper-capitalism,” recounted Wigglesworth, leading to the creation of consolidated annuities, “the world’s first true risk-free asset,” and the first gilt market, called so after the ornate, gild-edged physical bonds.
For Wigglesworth, “One of the struggles with writing a 1,000-year history of anything is that you want what you might call connective tissue. So, you're always looking for links.”
Those links led him to the United States and its first Treasury Secretary, Alexander Hamilton, whose report on public credit, he pointed out, was responsible for binding the U.S. into one federal country and one federal borrower. “They consolidated all the state debts from the revolutionary war into one pool and refinanced it with bonds quite often sold to British investors and Dutch investors, ironically,” he explained.
And since “everything flows from bonds,” they also somewhat ironically led to the formation of the New York Stock Exchange and to the building of the U.S. railways through one of the biggest bond issuance splurges.
“We're talking about a few trillion dollars’ worth of AI-related bonds [to fund] data centers and energy generation today. Well, the railways alone in the U.S. by 1890 had issued around $5 billion–$6 billion worth of bonds… If you scale it to the size of the economy, that's the equivalent of $10 trillion,” pointed out Wigglesworth.
According to him, bonds became ascendant because their fixed interest rate gives predictability to investors and they are tradeable. “It is an easier way of inducing people to lend money if you know you can sell that loan or flog it if you need to. It's one of the ways we've lowered the cost of credit and financed everything from slavery and wars to bridges and vaccines and, maybe, even data centers. Let's see where the ledger on data centers falls in future.”
Boom and bust
Apart from making delightful historic discoveries and meeting the colorful characters that he “fell in love with as an author,” one of Wigglesworth’s biggest takeaways from writing the book was how much the bond market matters.
“I sometimes worried that bonds are designed to be boring versus the racier stock market. But I was very relieved to see that bonds have caused a lot of financial crises as well. The stock market is the visible bit of the iceberg. But if you peek further down, you realize it's the bond market that tends to cause problems. We've seen lots of examples where the stock market can drop a lot. It's not fun, but economically, it doesn't need to matter that much. But when the bond market breaks bad, we really notice it very quickly. That is something I saw go again and again in history,” he said.
Is history repeating itself?
For Wigglesworth, financial crises are an inescapable byproduct of financial mania. “But it is quite often through those manias that we see big leaps, whether it's railways, the industrial revolution, fiber optic cable, AI maybe today … And maybe we just need to get better at making sure the fallout isn't quite so violently nasty all the time.”