Listen again: Bonds, heroes or villains?

Rob Young (0:00)

Hello, I'm Rob Young. Today, with the cost of government borrowing reaching its highest level for decades and decades in many countries, we thought you might like to hear again our episode taking you back through the history of bonds, looking at how bonds first came about, why they matter, and the level of control they can have over governments. Business Daily explores and analyzes how money and work impacts people around the world. Please do subscribe to get the latest and enjoy my look at how bonds have changed the world.

When I was asked to make a program about bonds, I leapt at the chance. After all, I'm a huge fan of James Bond, the suave British spy who repeatedly saves the world. But I was wrong. These aren't the bonds with tuxedos and martinis. These are financial bonds, silent operators in the global economy. Like their fictional namesake, they've worked in the shadows. Rarely noticed, yet shaping the fate of nations. They've even played roles in wars and crises. But here's the twist. Today, some economists see bonds not as heroes, but as villains. Dangerous, capable of detonating the world economy.

In this edition of Business Daily with me, Rob Young, we'll explore how the world became so dependent on bonds.

Sarah Quinn (1:26)

It's hard to understate their importance. It's really, really important for the economy.

Rob Young (1:31)

You'll hear how bonds have shaped companies and countries, and why some fear they could trigger the next global meltdown.

Kenneth Rogoff (1:38)

I think it's something where governments need to make adjustments, but probably won't until there's some kind of fiscal crisis.

Rob Young (1:46)

That's Business Daily from the BBC. Author Ian Fleming once said that James Bond was the dullest name he could think of, and the word Bond has carried that same reputation for centuries. Bond markets have never dazzled the public like their glitzier cousin, the stock market. But don't be fooled. Bonds have been powerful for hundreds of years, even in Shakespeare's time.

Geert Roenhorst (2:13)

I'll have my Bond.

Rob Young (2:15)

Speak not against my Bond. I have sworn an oath that I will have my Bond.

Sarah Quinn (2:20)

I pray you hear me speak.

Kenneth Rogoff (2:22)

I'll have my Bond.

Geert Roenhorst (2:23)

I will not hear you speak.

Kenneth Rogoff (2:24)

I'll have my Bond.

Rob Young (2:26)

Therefore speak no more. That scene from The Merchant of Venice, written in the 16th century. And by then, Bonds had already been around for 500 years. Bonds, dull, serious, sober, uninteresting for centuries. But now they are at the centre of a global debate. Do Bond investors have just too much power over governments? How did we get here? And what does it mean for the future? And two finance experts will help us unravel the plot.

Sarah Quinn (2:56)

I'm Sarah Quinn. I'm Associate Professor of Sociology at the University of Washington.

Kenneth Rogoff (3:01)

I'm Kenneth Rogoff. I'm a Professor of Economics at Harvard University.

Rob Young (3:06)

Let's get an explanation. What exactly is a Bond?

Sarah Quinn (3:09)

So a Bond is an IOU that's issued by governments or corporations. They used to borrow money, and they'll pay an amount, the principal over time, that amount of time is talked about as maturity, and they'll pay it with interest. So bond markets are where investors buy and sell those debts.

Rob Young (3:28)

So how crucial have bonds been then? How crucial has bond issuance been? When we look at the development of economies, of the global economy throughout history.

Sarah Quinn (3:39)

It's hard to understate their importance, because you have to imagine if anytime anyone wanted to start a business, they had to save up all the money to do it themselves. So, you know, farmers and traders and industrialists and inventors and entrepreneurs, they all rely on borrowing to get businesses started. And an economy without debt would move incredibly slowly. So railroads and skyscrapers and factories, they're all things that rely on debt financing. And it matters for the government too. It's not just about private firms. Governments use bonds to borrow and they invest that money in building power grids in schools and education that informs the workforce. Governments are often involved in making really risky investments that can have big breakthroughs in economies over time. So it's really, really important for the economy.

Rob Young (4:36)

Ken, take us back to the beginning of bonds then. Do we know when the first bond was issued?

Kenneth Rogoff (4:42)

The first government bonds were probably issued by Italian city-states in the 12th century, Genoa, Venice, Florence. The early bonds would be the duke or the king says, give me some money, this time I'm going to pay you back. He doesn't necessarily say when or how and presumably did that to hoax more money more quickly out of people. The first private companies to issue bonds were much, much later, usually thought to be the Dutch East India Company that was in the Netherlands. They started issuing bonds in the 1600s and then markets gradually came to other countries later.