The bloody birth of the bond market

Robin Wigglesworth (0:00)

We're going to tackle the birth of the bond market. It was actually born in medieval Italy, in Venice. Everything that was going on in Venice at the time must have been incredibly stressful. He makes a dash for it, but he's caught on the streets of Venice and stabbed to death. Wow. There's no respect for financial innovators, this is where Gillian, but they quickly regret how they treated the Doge. There's like a lot of soul searching in the city.

Gillian Tett (0:30)

Hello and welcome to a live recording with an audience of The Story of Money, the FT's financial history show with me, Gillian Tett.

Robin Wigglesworth (0:40)

And me, Robin Wigglesworth. We are here with you now in New York City. And thank you all for being here today.

Gillian Tett (0:46)

And today, we're going to be talking about a topic that matters to just about every single investor and which I'm very interested in. But actually, Robin is even more excited about. And that topic is the birth of the bond.

Robin Wigglesworth (1:02)

Yes, I have never seen a fixed income instrument that I didn't find. A little bit fascinating and mostly very, very interesting. Gillian sometimes teases me for being a massive bond dork.

Gillian Tett (1:11)

Exactly. In fact, you are the bond man. Not quite 007, but a different kind of bond.

But it's great to be here. And we're doing this because we're celebrating a book that Robin's written, but precisely because he is so obsessed with bonds, called A Fabulous Debt. It's out this month. Do go out and buy it and read it. And it's all about the history of bonds and why they are indeed the hidden force behind some of humanity's greatest achievements and greatest financial disasters.

Robin Wigglesworth (1:42)

Yes. And it often makes sense to begin at the beginning. So that's what we're going to do. We're going to tackle the birth of the bond market.

And it wasn't invented by a bunch of financial engineering wonks at a big bank. It was actually born in medieval Italy, in Venice precisely. And it was really, it was birthed by calamity, by a military disaster, the plague and murder.

Gillian Tett (2:09)

So in short, it's a pretty sexy story.

Robin Wigglesworth (2:13)

All bond stories are sexy, Gillian.

Gillian Tett (2:14)

Of course, yes, particularly if you are the bond man.

But right now, it's an incredibly good moment to be talking about bonds this autumn because the bond markets are indeed going pretty nuts. Lots of investors around the world are pretty concerned about it or trying to work out what's going on. But to talk about this, we have to go back to the basics and say, ask the one question that most investors are afraid to ask, what the heck exactly is a bond?

Robin Wigglesworth (2:42)

Yes, the bond market comes in more flavors than even Baskin-Robbins has.

But broadly speaking, it's a tradable loan. It's a loan with a fixed interest rate that you can buy and sell just like a stock essentially. That's why you'll pay a fixed interest rate, the coupon. But the price going up and down means that the interest rate you basically get, the yield can actually differ. So if the price of it goes up, the yield goes down, and if the price goes down, the yield goes up. That's why a lot of people sometimes get a little bit confused and maybe shy away from bonds. It seems more complex and difficult, but really it's fairly straightforward if you think of it as a tradable loan essentially.

Gillian Tett (3:20)

Right. Well, that's why in the FT, we always keep saying that the yield went up because the price went down or vice versa. But listen, let's go back to basics again and say, where did bonds start and why are we suddenly talking about Venice?

Robin Wigglesworth (3:34)

Yes. Well, have you been there, Gillian?

Gillian Tett (3:37)

Yeah, I've been to Venice quite a bit. I was there just recently at a conference. It's a beautiful place. It's the only place where you can land in the airport and then get straight on a water taxi to go to your hotel or anything else. It's wonderful. Okay.

Robin Wigglesworth (3:50)

Yeah, I haven't been there, but I took the train there, and I want to take one of those water taxis now straight from the airport. That sounds amazing. Well, it is. I mean, it's a beautiful place as we both know, maybe some people here also know.

It's also incredibly special because Venice was not founded by some royal or some distant duke that needed to build a castle or something. It was founded by refugees, refugees fleeing the Vandals. These were the Visigoths of Germany that periodically would raid into northern Italy. They fled to Venice, so that area that could be the armpit of that Gulf, because it was swampy and not very nice.