Bond markets are cause for concern and celebration

SPEAKER_1 (0:01)

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Peter Thal Larsen (0:28)

The market for government bonds is one of those wonders of modern life that we tend to take for granted. Like sewage treatment plants or the electricity grid, it's something we only pay attention to when it goes wrong. For the last few weeks though, the bond market has muscled its way onto the front pages of newspapers. There are several reasons for this. It's partly because state borrowing keeps rising. The US federal government debt recently surpassed $40 trillion. But more importantly, the cost of that debt is also rising. Yields on 10-year sovereign bonds in the United States, United Kingdom, Germany and France, which determine how much governments have to pay for debt, are at levels we haven't seen for almost 20 years. In Japan, those yields are at a three-decade high. Investors, politicians and central bankers are therefore getting nervous.

So this seems a good moment to delve into the past and future of the market for government bonds. It's what we do at Reuters Breakingviews. We tap top experts around the world for fresh insights into the biggest stories in finance, business and economics. I'm your host, Peter Thal Larsen.

And to talk all this over, I'm delighted to welcome Robin Wigglesworth onto the show.

Robin is a financial journalist. He's the editor of the AlphaVille blog at the Financial Times and also co-host of the FT's Story of Money podcast. And he's just published a very timely new book, A Fabulous Debt, The Epic Story of How Bonds Built the Modern World. And he joins me here in the studio in London. So Robin Wigglesworth, welcome to The Big View.

Robin Wigglesworth (2:06)

Thanks for having me on.

Peter Thal Larsen (2:08)

Well, it's a great time, actually, great moment to be here to talk about the bond market.

Robin Wigglesworth (2:12)

It's always a good time to talk about the bond market.

Peter Thal Larsen (2:14)

It's always a good time to talk about the bond market. That's true. You write in the introduction, what did you say? Something like this is, it was a bit like when I first learned about the bond market, it was similar to the all young surgeons must feel the first time they gaze upon the beating heart or exposed brain of a patient laid out on the operating table, which is quite something.

Robin Wigglesworth (2:35)

I'm dreading my colleagues reading that. They're going to make merciless fun of me. But it was how it felt. In the bond market, I knew a little bit about economics and finance coming in to journalism and financial journalism, but the bond market didn't really know. I'd say really I'd worked in finance financial journalism for a year before recovering it for Bloomberg News. It was Matt Winkler, the founder of the Newswire, started as a bond reporter.

The joy he feels about the bond market that he writes about in his guide to young Bloomberg journalists really infected me in a bad way and haven't been able to shake it off since.

Peter Thal Larsen (3:12)

Okay. Well, it's good to write about what you love. I suppose it's the first bit of advice. I mean, I want to start, there's a lot to talk about and a lot in this book to talk about, but I just want to start with the current moment. The government bond markets having a bit of a moment in the sun. Soaring debts, rising yields, politicians, investors warning about things.

Just given that you've written about the history from medieval Venice to today, is there a period in history that is helpful for us to compare this to this current moment?

Robin Wigglesworth (3:50)

Well, there are so many facets to what's going on today. You almost have to almost pick and choose from history what works.

When it comes to the AI boom and all the money getting poured into datacenters, and that going from money being reinvested by Meta and Alphabet, and they make a lot of money, they pour that into datacenters. Now, they're increasingly financing it with debt, with bond issuance, a massive amount of bond issuance, and increasing your off balance sheet debt as well. That reminds me a lot about the railway boom of the 19th century. I mean, that was actually many multi-booms, but it had a particularly huge one in the 1870s. It sounds because of the railway such as a quotidian invention for us today, but it was genuinely revolutionary at the time. People were worried about railways being so fast that it would drive people mad. Humans weren't built for this. At certain speeds, our bodies might become vaporized. This was genuinely science fiction almost for people.