Bonds’ hidden role in shaping empires and markets

The bond market’s deep roots in finance are rarely examined, yet Robin Wigglesworth, author of Trillions and editor of Alphaville, argues in A Fabulous Debt that bonds began as a revolutionary tool—and their development still holds lessons for today. Most bond discussions center on technical terms like duration, spreads, and ratings. Wigglesworth instead asks how modern markets emerged.

The journey starts in 12th-century Venice, where Doge Vitale II issued the first recorded bonds to fund warships. These were not just financial tools but instruments of state power. By the 20th century, the narrative covers government debt expansion, the Rothschild family’s market dominance, and the high-yield revolution led by Michael Milken. The book concludes with Jerome Powell managing bond-market turbulence during COVID-19, proving bonds remain essential in crises.

A Fabulous Debt stands out through its focus on key individuals rather than dates. Napoleon’s wars were financed through bonds, but his empire collapsed when investors demanded repayment. Jay Cooke, a railroad tycoon, used bond issues to fuel American expansion before his empire failed in the 1873 Panic. Lewis Ranieri, who created mortgage-backed securities in the 1970s, reshaped global finance with his innovations. The book weaves these stories into a narrative that feels more like history than a ledger.

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Financial history often feels dry, but Wigglesworth brings it to life. Early bond buyers in Venice mistakenly believed they were purchasing insurance, only to realize they had lent money to the Doge’s warships. The confusion arose from contracts describing bonds as “sharing war risks” rather than debt. This misunderstanding persisted for decades, showing how financial innovation often begins with missteps that later become market norms. The episode highlights a persistent pattern: bonds were rarely designed with clarity, yet their ambiguity became the foundation of modern credit systems.

How Bonds Fueled Empires and Railroads

The book also explores lesser-known moments that reshaped global finance. In the 19th century, U.S. government bonds for projects like the Erie Canal were marketed as patriotic duties, predating wartime bond drives. The first bond funds emerged in the 1840s as speculative pools for railroad bonds, which frequently defaulted. These early funds were about pooling losses, not diversifying risk—a stark contrast to today’s indexed bond ETFs.

Wigglesworth examines the 1907 New York stock crash, which indirectly led to bond ratings. After the panic forced J.P. Morgan to organize a bailout, bankers sought a way to assess creditworthiness quickly. John Moody responded by compiling a manual of railroad bond defaults and assigning letter grades. His 1909 system became the basis for modern credit ratings, though the first ratings covered only 20 companies. The New York, New Haven and Hartford Railroad’s initial “A” rating was later downgraded after financial troubles, showing how even foundational tools began as imperfect experiments.

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Geopolitics Shaped Bond Market Rules

The book also reveals how bond markets became tied to national prestige. At the Bretton Woods conference, John Maynard Keynes argued for a gold-backed currency system with bonds stabilizing exchange rates. His push was not just economic but a rejection of U.S. financial dominance. Delegates debated whether bond markets should be global or fragmented. The compromise included IMF bond-backed reserves, showing how finance and geopolitics have always been linked.

In the 21st century, bonds became victims of their own success. After the 2008 crisis, central banks slashed interest rates, turning bonds from safe havens into near-zero-yield assets. The problem worsened during COVID-19, as governments issued trillions in debt while investors still sought yields. Wigglesworth describes bond traders facing a new reality: even negative-yielding debt was in demand. The book closes with Jerome Powell in 2020, deciding whether to let bond markets signal economic distress or intervene further. The dilemma echoed centuries-old debates, from Napoleon’s wars to the 1873 Panic, proving that financial crises often repeat past patterns.

Unexpected Twists in Bond History

Luxembourg’s loss of a €40 trillion bond industry to Brussels, due to an EU legal quirk, is just one of many surprising details. The Rialto Bridge in Venice, now a tourist site, was once the heart of Europe’s first bond market. These examples show bonds have always been more than numbers on a page. The book also clarifies modern puzzles: bond ratings originated after the 1907 crash, the first quantitative easing predated 2008, and North Dakota’s capital, Bismarck, honors the chancellor who stabilized Germany’s 19th-century debt. Wigglesworth doesn’t just explain these moments; he makes them vivid and unforgettable.