How Bonds Quietly Built the Modern World ft. Robin Wigglesworth

[00:00:01] Robin

That kind of became the zeitgeist. This is unfair and some of them are bad, some of them will default. But broadly speaking, if you have a broad enough diversified basket, you’ll make out like a bandit. And that was the cornerstone realization of what became a pretty incredible junk bond empire.

[00:00:23] Intro

Welcome to Top Traders Unplugged. In markets, success doesn’t come from predicting what happens next. It comes from being prepared for what you can’t predict.

In each episode, we go deep with some of the world’s most thoughtful minds in investing, economics and beyond to understand how they think, how they prepare and how they decide, and the experiences that shaped how they see the world. No noise, no shortcuts, just real conversations to help you think better and invest with confidence.

[00:00:56] Kevin

Welcome everyone to Top Traders Unplugged. My name is Kevin Coldiron and I’m host of the Ideas Lab series where we talk to authors of new books that help us understand and navigate the global economy. Our guest today is Robin Wigglesworth. He’s a longtime financial journalist and currently editor of the Financial Times influential Alphaville blog. He’s the author of the book Trillions, which traces the evolution and future of passive investing. And he’s here today to talk about his brand-new book coming out in September, of Fabulous Debt, the Epic Story of How Bonds Built the Modern World.

Robin, thanks so much for joining us and welcome to the show.

[00:01:40] Robin

Thanks for inviting me, Kevin. I’ve been looking forward to it.

[00:01:44] Kevin

First of all, I feel like I have to start off by congratulating you on your market timing. You’ve managed to release a book about the bond market just when, pretty much, all anyone can talk about is the bond market.

How did you manage to pull that off?

[00:01:58] Robin

Well, Kevin, how dare you? The bond market is always interesting, always. I mean, I was always worried because I finished the book just before Liberation Day in 2025, the first draft. I was like, oh my God, should we try to rush this out? And the publisher pointed out the multitude of logistical issues around this, but also just the fact that ideally a book, if there is something going on that is particularly pertinent, that’s great. But you write a book to stand the test of time, so you can’t try…. it’s like market timing, you shouldn’t try to go crazy doing so.

But I felt always confident that there’s always something interesting going on in the fixed income market somewhere in the world and, low, there is right now, again.

[00:02:44] Kevin

Yeah, well, you know, it’s interesting that you say that about your publisher because really, this is a history book. It’s about the history of the bond market. And I’d actually like to start off with a quote about history from your introduction. You quote Lytton Strachey, who was a biographer and I think also a close friend of Keynes, who says, “ignorance is the first prerequisite of the historian”. And I’m curious how you interpret this because I have to say I’ve thought quite a lot about it since reading it.

I mean, to me it means we should kind of clear our minds of preconceived notions when we think about history. But then on the other hand, if we’re always clearing our minds, what is the value of learning history, right? I mean, what do we take away? So, I’m curious just why you chose to use that quote and what it means to you.

[00:03:39] Robin

It’s a great question actually, because I thought a lot about it as well when I came across it in a different book. I mean, for me it has two meanings, both of which felt very relevant for this. One thing is, yes, start without those preconceived notions. I mean, we can’t entirely ignore lessons, the history, sometimes the knee jerk prejudices we might have. But try to start, you know, from a place of ignorance because almost the journey also becomes more joyful when you’re discovering things for the first time, or relearning things, or seeing things you thought you knew from a radically different perspective.

The other part is also, you know, something that’s relevant for certainly historians, but also just journalists in that the world is immensely complex. And we need to find a balance between sort of embracing that nuance, the complexity in writing about it, but also writing in a clear way that, you know, we need to kind of bring forth the core truth, as it were. I mean, not to stretch things, but, you know, maybe cut off stuff that’s extraneous.

I mean, you work in a financial environment, for good traders it’s about cutting out stuff that isn’t actually essential, to hone in what actually matters. That doesn’t mean you’re not seeing an entire picture, but your focusing on the factors that matter the most.

For a journalist, writing a thousand years of bond market history, there are so many, I guess, tech people who call it side quests I could have gone down, and some of which broke my heart not to pursue. So, I love writing about sovereign debt restructuring, countries going bankrupt, and there is a bit of that in the book, but I was going to have a whole section on it. And I realized it was fascinating, especially to me, but it wasn’t really that essential.

Then there’s the issue of linkers. The linking, like an inflation truth bond, were invented in the US even before the US existed as a country. Massachusetts issued them. And they’re fascinating as well. There are so many other aspects that are interesting that I felt I needed to clarify by simplifying, and other things I didn’t think I was going to write that I did end up writing about instead.

[00:05:52] Kevin

Yeah, I appreciate that because I did get that sense in reading the book. There were a couple of times where you’re like, I would really like to talk more about this, but we’re going to go back to bonds.

[00:06:03] Robin

Well, this is it. I mean, when you write about something like this, it’s so easy to get distracted, like the history of central banking, the history of money, the history of financial markets more broadly. And sometimes I felt it unavoidable. So, there’s lots on Bretton Woods and the Nixon shock. Just because I feel you can’t really understand the trajectory of bonds in the 20th century, when really we saw that was kind of the real ascent of the fixed income markets, without really understanding the backdrop but still kind of keeping the idea that the hero of my story is the bond, the humble bond. He usually is the protagonist and everything else is a supporting character.

[00:06:42] Kevin

Okay, well, let’s talk about the history of the humble bond. I guess you talk about trying to pare things down to core themes. Here’s the kind of two core themes that leaped out to me in the book.

Number one was that a well-structured and functioning bond market can essentially turn borrowing into a source of strength. It allows the issuer to prosecute wars, finance, infrastructure, and all the things you need to build and maintain power. That was number one for me. And number two was that this proper functioning is really what you call the technology of how the debt works. That advances in power are often linked with changes in how the bond, the technology of the bond, works.

Those are the two themes that really, I thought, leapt out to me. And I thought maybe we could use some stories from your book to illustrate those ideas. So, perhaps we could begin at the beginning – Venice. Can you tell us how the Venetians came to develop a bond market and the role that kind of played in supporting their rise as a power?

[00:07:50] Robin

I mean, by complete accident, I mean, in fact, they lost the war and that’s how it was born, almost. So, Venice was the rise in commercial power in the 12th century in the Mediterranean. It was kind of the perfect bridge between East and West. They were a republic at the time of everything else in Europe was an autocracy. They technically were ruled by Constantinople, the Byzantine Empire in Constantinople (today Istanbul). But they were a Catholic Christian country, so they also owed some fealty to Rome. But essentially, they didn’t care.

They just traded with everybody. They traded with Christians, they traded with Muslims, they traded with north, the south. Commerce was their ultimate loyalty and that made them fabulously rich, but annoyed everybody else around them. And eventually Constantinople got so upset with its uppity, not quite colony, but their uppity vassal state that they essentially decided to imprison every Venetian in Constantinople and the Byzantine Empire.

And in this huge, actually incredibly impressive one day raid, we’re talking tens of thousands of people and they didn’t leak out, which must have been astonishing back in those days. But Venice decided, well, we need to teach our suzerain a lesson then. So, they were going to sail a fleet and get their revenge and free their citizens. But they needed money to do so because back in the day those states were tiny.

The state itself was small. Venice was rich, its people were rich, but the state itself was tiny. So, they always borrowed money from the money lenders, the banks that were starting to crop up in Italy around then. But this required a far greater sum than you can just hit up a few banks for. So, they essentially forced all Venetians to pay a war tax, a one-off war tax to the government that was proportional to their wealth. They assessed the wealth of everybody in the city and made everybody pay it.

But to kind of soften the blow, they said, well, we’re going to pay you 5% a year until we can repay this loan, this forced war loan/tax. And look, if you’re hard up for money, if you happen to need cash, we’re going to make it tradable. We’re going to keep receipts of every loan that people made us, and you can trade those receipts, essentially. You have to go down to the finance ministry and say, I’ve sold X amount of this Prestiti from, I don’t know, Paolo to Luigi. And that was okay.

And they built this massive fleet, sailed to Constantinople, but prevaricated, was struck down by the plague and had to return, for want of a better phrase, with their tail between their… I mean it was embarrassing. And also, even worse, they brought the plague back to Venice.

So, the Doge, because it’s a republic, he had to defend this in front of all his citizens. He was summoned there and he was trying to explain. And the crowd was getting angrier and angrier. And in the end, all these advisors just very quietly tiptoed out. And eventually somebody started to attack the Doge. He ran, he fled but was beaten to death and stabbed on the streets of Venice, murdered for mismanaging this war.

But of course, Venice couldn’t pay that loan now, that war tax. So, it just became permanent. But it proved magic. Suddenly people had something, that they could buy an income stream, they could endow and give their daughters a dowry in the form of this. You could use it as collateral for trade for the Venetians, that was particularly powerful.

So, suddenly in Venice’s misfortune, an incredibly powerful financial tool was made. And the core thing was that it had a fixed interest rate that was key because it gave them sort of assurity. You were buying this and this would pay you X ducats a month, for example, or a year. It was twice yearly it was paid, and that you could trade it. It was designed to be tradable, and it was a bearer bond where you had to register new buyers and sellers.

But it was fairly easy to go down to the Rialto, in Venice. It’s still there. It’s a fresh food market now. But that was the world’s first bond market. And then you just bought and sold stuff. And you’d wander over to the nearby finance ministry and just register the new owner, essentially. And it was such a great thing that the Italian city states copied it, and it just spread out from there.

[00:12:27] Kevin

It seemed to me that the key to the success was the absolute… or I guess two things. One, that seemed that this kind of absolute determination not to default, so that it became, you know, it may be not quite as good as gold, but pretty close. And secondly, that the bondholders were also citizens. So, they had a stake in the whole system.

[00:12:55] Robin

Yes. So, they never defaulted. They did default many hundred years later, but essentially, they never fully repaid it. They would pay it down because Venice rose again and, in fact, did get revenge on Constantinople. They seized Constantinople 20, 30 years later, I think, and actually seized four beautiful bronze horses, Greek era horses from Constantinople, that stood on the Hippodrome in Constantinople, and you can still see them today in the cathedral there. And so, they were able to use this as sort of almost like rocket fuel for the economy.

I mean, Greece, it kind of… In a world where there’s no digital money, it’s just specie and trade, actually having something that kind of looks, walks, quacks, and talks a bit like money is incredibly powerful for a merchant city. But it is also particularly powerful because it kind of entrenched democracy, because it gave citizens who owned this a vested interest in the proper governance of their own city state. So, Venice, also the republic, the democracy of it, I mean imperfect by today’s standards, but revolutionary for the era, became entrenched.

And also, they started publishing transparent state finances. They actually published what the government was spending and taking in. And in a world of autocracy, this was a little island of accountable quasi democracy. And it kind of shows that bonds can have multiple facets to them and can actually sometimes have positive unintended consequences as well. Not least making its citizens creditors citizens essentially and binding them even more closely together.

[00:14:47] Kevin

Yeah, I thought that was just such a great example of, like you say, borrowing, which I suppose has a negative connotation, but this was a great example of how it was, in some sense, an asset to the Venetian Republic. And later on, there was another kind of technological change, I think was like 1262 or something, where they consolidated all these different issues into a single series. And that’s something that we kind of see repeated throughout history and is very important. Can you explain why that consolidation was such an important kind of event?

[00:15:27] Robin

It was again, sort of emergencies. It’s generally emergencies that push this forward. But they’ve been issuing happenstance, new loans, new war taxes here and there. And then they kind of realized, well, actually, it’s easy if we just consolidate this into literally a mountain of state debt. But despite the negative connotations that a mountain of debt sounds, having one homogenous pool of debt is even more powerful because first of all, it makes it far more easy to trade. You’re not worried, am I buying this bond or that bond? What’s better or worse? It just makes it far easier.

And you can kind of see the contours of what the bond market is going to be. It’s like freely tradable, homogenous and a fixed interest rate. The Venetians, because this was actually quite an incredible invention, they wouldn’t let non-Venetians buy, or only very rarely. It was an honor they bestowed on certain foreign were allowed to buy Venetian bonds. So, it was still a fairly, very city centric bond market. And then each Italian city state just basically copied and pasted it.

But you could see that sort of they were taking the basic idea and starting to evolve, like, improve on the technology gradually. And that’s what we’ve seen ever since.

[00:16:45] Kevin

Yeah, and that’s, actually, a good unplanned, but good segue into my next kind of question, which was going to leap forward a few hundred years to talk about the UK. I believe you describe the UK bond market as eventually becoming the first reserve asset, which implies that a leap forward was creating a bond market where it could serve as stores of value for non-citizens. So, I thought maybe you could explain the UK experience with the birth of, as you say, bonds as the first kind of reserve asset.

[00:17:31] Robin

Well, it started with what the UK calls the Glorious Revolution, though it was not considered glorious or a revolution at the time. So, the Dutch probably took the Italian invention of a bond market and improved it the most. They created the first true bond market with different states, different towns, different water utilities, water boards, companies. The VOC issued the first corporate bond in the 1600s and they really kind of showed the power of it, but it was very Balkanized, it was not homogenous. But they did sell bonds, freely tradable, and they sold it to Brits, to Germans, to Belgians, to the French, to everybody. But it was mostly the Dutch – they were very thrifty, they saved, and they invested in bonds and used bonds to frankly managed to beat down this hyper power of the area, the Spanish Empire, and gain independence after a fairly sort of destructive hundred year war.

The Brits kind of felt they’d kind of fallen behind another Protestant country, the Dutch. And this is a time of huge religious tumult. The Dutch famously sailed in and raised the Royal Ship shipyard in England. So, it was this sense that the Dutch, this tiny country that wasn’t even a country until recently, have surpassed us.

So, a lot of the elite in England, basically, I mean, I use the phrase copy and paste, but that’s what they did. They imported a Dutch prince and copied over a lot of Dutch financial practices and ideas. So, that led to the birth of the Bank of England, for example. It was still a state chartered but private bank then, but they also started moving towards a more consolidated holistic bond market.

It took a long time, but eventually we saw the birth of something called consolidated annuities, because it was all these different annuities, as they were called, consolidated to one pool. And they used to pay 4% or 5%, and you’d typically say they’re going to pay 4%. And at times of war there were perpetual bonds. Countries always issued perpetual bonds back then. The interest rate didn’t tend to change that much. They issued at 4%, 5%, but if demand wasn’t sufficient, they’d sell it at a discount.

So, you could buy, let’s say a 4% consolidated annuity at 90p on the pound, if people are worried about the UK. And then when the UK was doing well, maybe that’d be trading at 110p. So, now, definitely you can see today’s bond market there. And the essential new thing was that the Netherlands was a collection of lots of states and they were very mercantile. They’d taken over the great commercial… the most commercial people in the world, probably, then. But it wasn’t one sovereign nation state in the same way England was. And in fact, that proved not just very attractive to Brits, but to the Dutch.

The Dutch bankrolled the UK to a huge extent. You know, there’s a reason why even the Americans during the Revolutionary War, they went to the Netherlands to ask for loans. They were so the bankers to the world and the English took advantage of it. But that’s kind of, I’d say, the first bond is at Prestiti, in Venice. But there are people that say the true birth of the bond market is actually in the 1600s in Britain.

And then you can decide, is it the birth of the Bank of England and it’s the bond that it backed, or is it some of the later issues like the consolidated annuities? But it was, I think, the Brits that really showed how you build a national sovereign bond market and the power that can give you.

[00:21:13] Kevin

And what was it about the consoles that allowed them to serve as a reserve asset?

[00:21:22] Robin

Well, that didn’t start immediately, though foreigners did buy them. But it’s partially because of the Glorious Revolution also lessened the power of the royals. So, back in the day, if you lent money to Spain, really what you were doing, you were lending money to the Spanish king. And, if push comes to shove, the king can chop your head off. So, lending to autocrats is always a bit dicey.

But in England, it started shifting out of the royal family, and Parliament took more and more control of the purse strings. So, it was Parliament that was issuing these bonds, so England as a country, not whatever family was sitting on the throne at that point. And they also started, again, a bit like the Italians publishing more transparent state finances, and the fact that the Parliament could keep the king in check – there were checks and balances.

Actually, it’s incredible reading what some Dutch merchants would say, why they started investing in Britain, because they just liked that. And then over time, that bond market made Britain more powerful. One of the reasons, the large reason why England was able to beat Napoleon eventually wasn’t… I mean, Horatio Nelson and the Duke of Wellington did an incredible job. But England was only able to fight for so long against a far larger enemy because it could fund itself, to an enormous degree, by the bond market.

Even Napoleon marveled at how England could do this. So, he called Britain a nation of shopkeepers, rather pejoratively. But it was then afterwards you can see that England was triumphant and the British bond market was huge. But because people trusted England to keep paying those bonds, they never defaulted. They just became kind of portable money in an era where, yeah, again, gold and silver sometimes were in short supply. So, it just became something that was valuable.

And if England or English merchants wanted to buy something, a lot of people around the world, certainly in Europe, would accept consoles as payment. And that’s, you know, the word guild is the Dutch bonds that was considered super safe, issued by Holland, for example, the strongest province. So, there have been some quasi-safe currency, so, reserve currencies.

Before the Roman denarius cropped up all the way in China and India, we’ve found hordes of Roman silver coins showing that both there was a current accounts deficit with Asia, but also that they did accept Roman coins. But I think in the sort of semi modern era, the great British bond market, the consols market, is the old treasury market, essentially. It was for several hundred years.

[00:24:07] Kevin

It’s an interesting through line, isn’t it? Because Venice, then the Dutch Republic, and then the UK, they were all kind of early forms of democracy and the bond markets developed sequentially in those states. And that doesn’t seem to be an accident. It seems like there has to be some sort of, I don’t know, external disciplinary mechanism to give the bond market or give the investors some sense of that they’re going to get repaid.

[00:24:43] Robin

Yeah, I mean the true aspects of this one, which actually surprised me when I was doing research for this one, which I knew that broadly speaking, the countries that have been successful are the ones that have nurtured bond markets and have frankly embraced finance. I mean, finance, you know, is not very popular. It has never been popular.

There’s a reason why every single major religion has some prohibition against interests or usury. It still is today, it’s not popular. But broadly speaking, the more financially sophisticated a country and economy is, the better it has done. It has better been able to mobilize the wealth of its citizens to reinforce that progress, essentially. And the bond market is a great example of it.

So, I knew even before I wrote the book that I was very confident that, as I was studying this more and more, that strong bond markets lead to stronger countries and stronger countries lead to stronger bond markets. And it’s a positive feedback loop. The one thing that surprised me, which goes back to the credited citizen aspect in Venice, is to what extent actually the bond market helped entrench and spread democracy in Europe.

And it goes back to again, England, because people felt more comfortable lending money to England because it was a democracy, because it had representative democracy and it controlled the powers of the king. But the Parliament was also controlled. There were checks and balances and that was why people felt… And then London and England could borrow more cheaply. And that again strengthened its advantages.

When other countries realized that, they too also implemented, at the very least, certain democratic reforms, certain transparency measures. And the most obvious way of seeing this is Prussia. So, that the precursor to modern Germany, after the Napoleonic Wars, went to Nathan Mayer Rothschild, or the Rothschild family, in London, that was emerging as the big bond kings of the era, and said, we want to issue a bond in England.

And Rothschild said, well, sure, you can do that, but you have to do it in pounds. And British investors will want to see you control the power of the King of Prussia and publish some numbers. You’ll have to do these things. And there are letters. Niall Ferguson, the historian, has written fantastically about this. And it’s quite remarkable seeing how supremely wealthy but still a Jewish family, in an era of rampant prejudice in Europe, is writing letters to the finance minister of Prussia saying, just forget it, son. You aren’t going to get this money unless you do exactly what I tell you. And Prussia did commit.

I mean, they kind of backtracked on a few things, but again, you can see that you start seeing it kind of them moving in the right direction. And I don’t think the bond markets have helped democracy flourish or anything like that, but it was kind of on the side of the angels, one might say, and was a reinforcing factor in that general push away from autocratic royal families that we saw around then.

[00:28:00] Kevin

This is going to take us a little bit off piece. But before we move from Europe to the US I wanted to ask, as I was reading this section, talking about how both Venice and then the UK had big leaps forward when they consolidated their various bond issues into a single issue, I started thinking about the current state of Europe and how it seemed to me a little ironic that the birth of the modern bond market was in Europe and was turbocharged by a consolidation of individual state debts. And that’s really what you’re looking at, a situation now in the EU. And I don’t know, do you see that parallel? And do you kind of see there’s any chance that maybe that they’ll kind of relearn the lesson of history and have some type of consolidated debt that, you know, might turbocharge the, I don’t know, power of the European Union?

[00:28:56] Robin

Yes and no. I mean, to deal with the consolidated debts, I do not think we’re ever going to see that, unfortunately, in that true sense of the way people talk about eurobonds, European government supranational bonds. We have it, a little bit, in bonds issued by the EU and the European Investment Bank and the European Stability Mechanism that kind of, I mean, I’d say they are eurobonds. They are jointly guaranteed and they are the responsibility of the taxpayers across the region.

But in the sort of total sense where they issue European treasuries and it’s the birth of the European treasury market essentially in euros, I think that the sense of nationhood is a little bit too entrenched… It’s essentially, it’s always… You can see this in the US where the US was, at one point, a creditor nation, like, every country in the world owed the US money and that obviously informed how the US thought about things. Now, of course, the US is a debtor country, it thinks completely different about these things.

And then Europe, maybe at some point the south has a renaissance and the north goes down, you know, but broadly speaking, there’s always going to be somebody nobody wants to essentially be seen or seen to be sort of bailing out their neighbors, as it were. So, I said that I think it would be a great thing, but I think Europe can get a little bit of the way there. And I would say that I’m way more optimistic than I was about some of these than before.

I mean, I covered the Eurozone crisis, I covered the financial crisis, and if I’d gone back 10 years ago, the idea that European policymakers would be talking gushingly about capital markets, and securitization, and joint financial regulation, all these things, I mean it would have been unthinkable. I mean, obviously they had a bond market, it was a sovereign market. The corporate bond market was not meaningful. The high yield market was almost nonexistent. And it was seen as this is an emblem of American style capitalism that was broken by 2008.

But now, I mean, Europe would kill for a smidgen of what the US has. It’s kind of been realized that this is, at the very least, a good adjunct to your banking system, but actually might be even superior. And I think it’s going to move very slowly, but I feel for the first time, across political sort of sides, across different countries, there is general broad agreement on the direction of travel. And, you know, it’s a bit like a supertanker. It’s like a fleet of supertankers. It’s going to take a while to get where you want them to go, but they’re going there now. So, I’m actually more optimistic on the direction, if not the speed, than I’ve been for a very long time.

[00:31:47] Kevin

I think maybe this is a good point. We can actually talk more about the modern bond market and which really, where Europe is involved with the kind of birth of what’s called, often confusingly, the eurobond market. Can you… I think you do point to that as the beginning of the modern bond market. Can you kind of just walk us through what happened there, why they’re called eurobonds and why it’s so important for financial centers to have good restaurants?

[00:32:19] Robin

Yes. So, these are kind of the original eurobonds. So, after World War II Europe was in tatters. I think we almost forget it was within living memory of at least our parents. And it’s hard to exaggerate how bad things were. And the US in a major way, stepped up to the plate, pumped money through the Marshall Aid. Eventually the World Bank also came playing in, the IMF helped budget the system, the whole Bretton Woods system, essentially.

So, Europe did recover, but it meant that the US went from being this massive credit nation, every country owed them money, to more and more dollars seeping out into the world. That’s a great thing. The dollar was the only currency that was still pegged to gold, and other currencies were pegged to the dollar. So, the dollar was kind of the world’s gold.

And this is the birth of the American exorbitant privilege – the position, the unique position that the US has in today’s financial system. But it meant lots of dollars floating around the world because other people would use them as currency. Hilariously, this included Soviet banks in Eastern Europe or certainly sort of communist banks, banks owned by communist states like East Germany and Poland, but also the Soviet Union itself. And because they had to buy and sell stuff, they exported, you know, banks still do these things even in Communist countries.

So, they had all these dollars, and they didn’t want to keep them in the US, they kept them in Europe. And there’s a bank in Paris called BCP, Banque de Commerce Near East or something, and it had a lot of the Soviet Union’s overseas dollars, and it had the wire address Eurobank. So, whenever it wired money to somebody it would say Eurobank. So, these dollars, offshore dollars, were just called eurodollars.

So offshore currencies are generally always called eurodollars, even if they’re not actually euros, or dollars, or whatever. But you suddenly saw a huge pool with this. American companies were exporting and selling abroad. They didn’t always necessarily want to repatriate it to the US, so you have all these dollars started hoard up elsewhere and people realize, well, this seems like an opportunity for a banker.

And at the time, because London had been shattered by the war, the city of London, Europe in general, you’d see European companies, and European states, and European cities, go to the US to borrow because the US was the only game in town. So that’s the birth of the truth of the Yankee market, I guess we’d call it now, that foreign companies issuing dollar onds in the US, the US investment investors.

But as Europe improved and ameliorated, European investors were buying stuff, especially in Switzerland, for example. And you had this perverse situation where European companies would go to the US to borrow from European investors. A lot of bankers, particularly in London, thought this was a travesty. So, they decided to use those eurodollars to create the eurobond market.

And it’s just eurobonds and it’s not necessarily European. Lots of countries around the world issue. It’s basically the bond market at its most borderless and international. And it kind of harnessed all those dormant pools of eurodollars that were kind of pooling around in bank accounts around the world and recreated, I guess, what Nathan Mayer Rothschild originally created – a bond market.

And it was essential to rebuilding London as a financial center for the world from the 60s onwards. People would think of equities and stocks and the UK. There’s almost legends about the big bang, the reforms that came under Margaret Thatcher. But the city’s renaissance had started long before then. And it was built on the back of bonds as it had been in the 19th century as well.

[00:36:15] Kevin

And then I guess this became successful enough that, you know, US companies started selling them as well.

[00:36:24] Robin

Well, yes, because I mean there was so much money abroad. Because also, don’t forget, in the US you could almost write an entire book just on Regulation Q. Do you remember Regulation Q?

[00:36:36] Kevin

I do. They restricted what savings and loans could… restricted the interest rates they could pay. Is that right?

[00:36:44] Robin

Yeah. So, deposit accounts, this plain window, weren’t supposed to pay any interest and savings accounts were capped and they were set by government. And this was born in the Great Depression. And I think it made perfect sense then. and in the rebuilding of the World War you don’t want too much money hoarding. So, it was one of those things that makes perfect sense at the time. But over time it increasingly becomes perverse and silly. And it kind of obviously repelled and encouraged people to keep money offshore because you could put the money into a eurodollar account at HSBC, or BNP Paribas, Deutsche Bank, and make more than you could at JP Morgan.

The US also had started to swing from a massive current account surplus to a deficit. So, the US was actually quite keen to keep dollars overseas as well. They encouraged this because it helped at least protect some value of the dollar as it was losing its value. But essentially, US companies eventually as well decided, well, you have this hugely vibrant dollar bond market, and it’s offshore, but we don’t care where we borrow money. We have operations abroad as well. So, they started tapping it.

Eventually developing countries started tapping it and it just became… old timers still call it the Eurobond Market, but it is essentially the external bond market, the big bad international bond market that is truly stateless. It is not just in London, it’s everywhere. And it is, I mean, tens of trillions of dollars worth. It’s hugely vibrant and fascinating, and you’ve got countries like the Vatican, Papua New Guinea, Russia though they’re shut out now. The Church of England issued dollarbonds. It’s frankly wildly vibrant and impressive.

[00:38:39] Kevin

Yeah, and I guess the other aspect that I really appreciated about your book, I mean these are historical stories, but there’s also a lot of great individual characters in there and maybe we could talk about a couple of those.

To me, the most interesting is Michael Milken. And partly because, you know, I wouldn’t say he’s forgotten exactly, but I mean, I think for people, certainly my generation, we haven’t forgotten him, but I think the younger generation, they really don’t know who he is and how influential he was in creating, in helping create aspects of the modern bond market. So, I was wondering maybe if we could just, not bring him back to life because he’s still alive, but I mean, let’s talk a little bit about his role in the modern bond market. Can you tell us about his kind of original inspiration that he had at UC Berkeley and how that kind of set him off on his career?

[00:39:39] Robin

Yeah, I mean he’s one of my favorites as well. He did not talk to me for the book. He refused to talk. But of all the people are still alive and living, he’s probably one of the people I would most have liked to talk to just because he is, I think, genuinely more fascinating and complex than maybe even the people I know him appreciate. Certainly, even before me, he’s just a very interesting guy.

So yeah, he was at Berkeley and he switched to business studies and he was very brainy. I mean, this is a guy that I heard from other students that they didn’t want to take his classes because they graded on the curve and you just know you’re not going to get top grade when he was in there. He was like, the teachers would ask him questions, he was that smart.

But at Berkeley he stumbled over a book by a guy called Braddock Hickman who was then a little-known academic who actually would go on to lead one of the regional Feds. But Braddock Hickman had written an incredibly dense study of corporate defaults from, I think, the early start of the 20th century to around the 1960s. And he showed that, actually, ratings are broadly accurate – the credit ratings, the higher the rating, the less chance of defaults and lowly rated credits, corporate bonds, did default more. But (and this was the sensational bit), the returns on those badly rated bonds were so much higher that even though they defaulted in greater numbers, your returns were vastly better in junk bonds.

And it’s obviously couched it in very sort of academic language. It’s very… I’ve read that paper. It is not gripping. It’s really interesting. It’s really good data work at a time when frankly, don’t forget, this was kind of not quite pre computers, but I don’t think he had access to a computer. So, it’s impressive work but it is not written grippingly. But Mike Milken, as a student, immediately grasped it and that kind of became the zeitgeist or the whole thing that guided through life.

Companies are unfairly rated not because like they don’t default, but they just are paid too much. They are shut out of markets. This is unfair. People should be lending more to these companies because you make more returns, but also you can open up access to capital to all sorts of companies that might look bad, and some of them are bad, some of them will default. But broadly speaking, if you have a broad enough diversified basket, you’ll make out like a bandit. And that was the cornerstone realization of what became a pretty incredible junk bond empire.

[00:42:25] Kevin

Yeah, and you say, I mean the stories about Milken are really good. I mean, you say he had this five-hour commute from Philadelphia to New York and he hired a guy to sit next to him so that no one would talk to him so that he could spend his time studying the bond market. I really appreciated that one.

His rise was quite extraordinary. I mean, Drexel’s, where he worked, their high yield department at one point had four times the capital of Goldman Sachs, according to you. And Milken, again, I think you say, earned US$550 million in 1986.

[00:43:00] Robin

When that was real money.

[00:43:04] Kevin

Yeah, I mean even Elon Musk would struggle to get that kind of paycheck now. But what I thought was interesting about the Milken example was, he goes on to basically create the modern junk bond market. And he does this based on what you just described, under the observation that high yield bonds default… or the return on high yield bonds more than compensates for the default risk.

But that original paper was written really looking at companies that were so-called ‘fallen angels’. In other words, they were companies that issued bonds when they were in stronger conditions and then they became lowly rated. And what Milken did was create an original issue junk bond market.

So, people were coming to market with junk bonds as opposed to having bonds that had started off highly rated and became junk bonds. So, could you just tell us a little bit about that? Because it’s a great example, I think, of people studying the market, acting on it and then changing the very thing that they’ve studied.

[00:44:21] Robin

Yeah, I mean, I think this is also what’s unique about him in that, you know, let’s say that original Braddock Hickman paper, let’s say if a million people had read it, and let’s say a million people have not read that paper, but let’s say 100 people would have understood and grasped the implications, 99 of them would have just used it to buy junk bonds. And, just used it as a great investment strategy, it would have made lots of money and that’s great. And probably wouldn’t be known as great investors because, really, all they did was systematically buy junky bonds and then harvest that return premium that you’d get.

The hundredth person was Mike Milken, and he decided to build something. He decided to transform it and in the process change its nature. Because, I mean, one of the almost original sins I see in financial economics or in finance all the time, is that people treat it as if it’s science. Like, if I do 100 physical experiments, you’re going to get 100 same results. In finance, the market is adaptive, it’s dynamic, it changes. And as somebody discovers something, it generally gets kind of whittled out.

And junk bonds, because Mike Milken had studied a period when it was primarily companies, like you say, having been investment grade and then downgraded, and a few corporate raiders, that first generation of corporate raiders had issued paper that was, you know, rather pejoratively equaled Chinese paper, at the time. And you know, he decided to make it a new issue market.

But of course, I think that the first iterations, the first vintages of this market were generally the better companies and the better raiders because he kind of built this entire machinery. He seeded funds. I mean he created the whole industry. He’s the father of it all. The whole leverage finance industry, even today’s private credit, like, that’s his grandchild and he built the whole thing.

But of course, you know, as they found more and more and some of these raiders, you go like some of those were… I mean, Carl Icahn is an impressive guy and lots of his stuff didn’t work out. But he’s smart. Not all of those raiders were actually very good. And they were just as wasteful as the corporate CEOs that they replaced.

So, they were supposedly making corporate America leaner and meaner, but in practice they were just kind of propagating some of the same issues. So, you can see some of the later vintages of junk defaulted in very high numbers. The returns were not great because that market had evolved. A lot of companies that normally would have been shut out completely had been able to issue. A lot of companies were rightly shut out of the market were able to issue, thanks to Drexel Burnham Lambert’s machinery, this bank where Mike Milken worked.

And I think still, to this day, there is a risk premium in high yield. It’s more volatile. It kind of sits between cred like corporate bonds, IG corporate bonds and the equity space. But there is still a premium there. But it waxes and wanes a lot. And it’s never been as big as it was when Hickman looked at it.

[00:47:34] Kevin

Yeah, thanks for that, man. I thought that was just such a great example of, I don’t know, you call it maybe the Soros reflexivity of market, right, the individuals changing the fundamentals. I know we’re kind of coming down to the end here and I wanted to loop back on this notion of bonds as technology. That we’ve seen these big advances in the use of bonds and their power be linked to the way in which they’re structured.

And you talk about other technologies that have become very important, securitization, turning pools of loans into a tradable bond, tranching, allowing those pools to be sliced up and structured as cash flows. We know that both those things played a big role in the global financial crisis.

I wanted to ask two questions. One is where do you see fixed income ETFs on that kind of technology spectrum, number one? And number two, are there technologies, you know, coming down the pipe that maybe our people are experimenting with or that, you know, we should be kind of keeping our eye on that would have the potential to change the bond market further in the future?

[00:48:51] Robin

Well, if I do the second question first, I still think it’s probably a little bit overhyped in certain circles, but some of my smarter contacts are getting quite excited about tokenization or fixed income markets. So, we’ve already seen it in repo. I mean, repo is a fast-paced market that kind of underpins everything. I always call it the dark matter of finance because it kind of binds everything together even though you can’t see it there. The volumes in tokenized repo, there have been some experts, they’re actually growing.

[00:49:21] Kevin

And so, just for listeners who aren’t aware, how would you describe tokenization of bond markets, say?

[00:49:28] Robin

Well, essentially sort of slicing individual bonds into and trading over distributed ledger. So, it’s a simultaneous real time trading on a transparent blockchain of some kind. And then you can, you know, the issue with bonds, you can trade it in all sorts of different prices and you know, some of them can be quite tricky to trade. But if you tokenize everything and essentially turn it into like small tradable units, it should make liquidity better. It should make trading easier, more efficient.

You don’t have T + 3 settlement days, like if I buy a bond, if I buy a muni bond, I think quite often you still have to wait 30 days until it actually kind of hits the account. It’s just some parts of the bond market are still very much stuck in the 20th century. But I’m not an expert on tokenization. But it’s one of those areas I’ve started to think I should pay a bit more attention to and think about the implications. Because if it does look to make fixed income a bit more equity like as well, in the speed and efficiency, that has implications for how like literally the nature of the market changes – it evolves.

And that actually leads to the second issue which is a subject close to my heart. I’ve written an entire book on the history of index funds and ETFs and I would say I, for a very long time, not underestimated, I always thought passive would have another sort of similar arc in fixed income as it has had in equities. That I’ve been so sure about for a long time. I’ve written lots about for the FT, and in my book. But what I had underappreciated is how specifically the technology of the ETF (for want of a better word), the creation/redemption process, how that kind of structure operates is both probably arguably better for less liquid markets, like the fixed income markets.

There’s always been this worry about the combination of less traded underlying securities and a highly tradable equity wrapper, that they would collide in ways that are bad. And I’ve actually gone from sharing a general, oh, I’m sure this will end badly at some point, or there will be something bad that happens, to actually think the ETF might be in a better wrapper at least for many investors in fixed income markets.

And also, I’d radically underestimate how much that technology has kind of almost unlocked, or sped up, or interacted in interesting ways with other fixed income trends, like the electronification of bond markets. So, more is being traded electronically. In the old days we did everything by the phone. They’re definitely dying in things like treasuries which have been very electronic for a while but also credit is becoming more electronic.

Then you have the rise of portfolio trading where you can trade big blocks of bonds, like massive lines of CUSIPs, you know, tens, hundreds, even thousands of bonds sometimes. The ETF is perfect for that because you can sort of… If it looks a little bit like one of the ETFs, you can very easy to strip out a portfolio from that or create a portfolio from an ETF share.

And then there’s systematic trading. I know lots of stat arb hedge fund types in the hedge fund space at quants. It’s kind of one of my first loves as a financial journalist. I think it’s fascinating. And there’s been talk for at least 10, 15 years that fixed income will have the same quant revolution that has happened in equity markets. And it hasn’t really materialized to the same extent.

But I think the ETF makes a lot of bonds more liquid. More liquid bonds leads to more trading. More trading leads to narrow bid/ask spreads. It’s kind of like (I know I’m going to sound like a McKinsey consultant here), it’s like a flywheel where it’s all helping each other. And the crucial change was the ETF. And the ETF, contrary to what people, including me, fear that it would cause an accident and would be bad for the liquidity of the bond market (remember, for a long time we worried about the liquidity of the bond market, the tradability of it was dying in the wake of the reforms of the financial crisis), in fact, the ETF, I’d argue, has helped save the bond market.

It has helped make large parts of the credit markets, especially, far more liquid than they’ve ever been before. And it has other unintended consequences. Like if you’re not in an index, if you are issuing a bond that doesn’t plausibly fit into one of the major indices that is used by one of the major ETFs, then you’re kind of a bit of an ugly stepchild. The liquidity pools. Right? It centers around something.

But I think the ETF, and there is not a chapter in my book about this, I mentioned this, but I’ve written a lot about it for the Financial Times, but I think is genuinely one of the more interesting trends to watch over the next five years is the ecosystem shift in fixed income (especially credit, which has been slightly more archaic) and how ETFs are actually speeding that up. And I’m sure we will have accidents at some point, but that’s been fascinating to watch.

[00:54:54] Kevin

Yeah, I completely agree. And it’s had the effect of making a lot of different bonds more ‘money like’. And no, we won’t go there. That’s a different rabbit hole. But yeah…

[00:55:15] Robin

I love rabbit holes though, Kevin, rabbit holes are the best. My life is a whole rabbit hole, basically. Like I wrote a book about my last rabbit hole.

[00:55:24] Kevin

Well, let’s maybe wrap up. I can’t let you off the hook without asking you about what’s currently going on in the bond market. And as we’re recording this at the end of August 2026, and this is just after Scott Bessent, the Treasury Secretary, has kind of doubled the size of the treasury liquidity, enhancing buybacks. And there’s been a lot of criticism of that and a different explanation for what he’s trying to do.

You’ve just written an excellent piece on the, I don’t know, the dependence of the US bond market on hedge funds now. And that relates to hedge funds increasing their footprint, their owning of treasury bonds as part of a variety of arbitrage strategies, the most important of which is the so-called basis trade where they go long the physical bonds and they short the futures and they lever up the difference in price between those two things. So as part of that they are big buyers of treasury bonds.

And the book that I write and talk about, that I wrote and I talk about is the Rise of Carry. And that trade is essentially a carry trade. It has all the characteristics of a carry trade. It’s highly levered, it’s liquidity providing, and it tends to do poorly in periods of high volatility. So, it’s short volatility.

So, my thesis, or not really my thesis, but a thesis that people have put out there, is that what Bessent is trying to do with these buybacks is to kind of cap the volatility on the bond market and therefore kind of make it safer for these basis traders to continue buying treasury bonds. And I think the evidence for that is we don’t really have enough data, I think, to say conclusively. But what do you think is the idea, the motivation behind what Bessent has been doing with the buybacks?

[00:57:33] Robin

Well, I’ve thought a lot about this and obviously I don’t know when this is going out, but I feel very confident in saying that whatever this pod goes out, he will not succeed. The buybacks, increasing those buybacks, even if he 10x’s it, it’s like peeing on a forest fire. It is not going to have a meaningful impact. And the bond market has sussed that out very quickly after the initial shock.

There are other levers he can do, but fundamentally every dollar the US treasury spends is a dollar they have to borrow. They’re just switching $1 for another dollar of debt. And you can change the maturity structure and issue lots of treasury bills to pay for long dated buybacks, but again, given the scale of what the US government is borrowing, it’s not going to materially change – nothing’s going to help.

I do agree that he wanted to bring back that low end and dampen down volatility. But what I just don’t get is that the volatility was not high. There was a bit of a sell-off. This is not like after Liberation Day, in 2025, when the bond market, it was more of a swap spread trade blow up than a basis trade blow up. But I think they were quite rightly worried that the basis trade would be the next big shoe to drop. There are already signs of weakness in some of the weaker players in that trade because there’s so much money tied up in that.

So, then Trump famously said the bond market was getting ‘yippy’ and they put a pause, took a timeout on the tariffs until things calmed down again. But this was not a fantastically volatile era. It was just that inflation, people were pricing in inflation was probably going to stay a little bit more elevated for a bit longer. And the Federal Reserve looks, under new management and the Chairmanship Kevin Warsh, less inclined to raise interest rates.

So, this is a credibility issue. So, you can see the term premia was going up, inflation breaking, it wasn’t changing that much. But the simplest solution is just for Kevin Warsh to say that he’s up for interest rate increases and you’ll see that calm down. So, it feels like it’s like that old adage (I can’t remember where it’s from), it’s like we must do something. This is something, ergo we do this, and it doesn’t really work. So, they felt they had to do something. Affordability is an issue, 30-year mortgages were getting more expensive, we must do something. This is something.

Well, actually just makes you seem incoherent and desperate, but it’s something at least. So, I struggle to see the rationale beyond. Bessent knows all this, I’m sure. I’m sure he knows this was not going to work. I think he just did it because the ‘boss man’ wanted him to do something and this was something.

And it’s going to be interesting to see how they evolve and how they do this. But fundamentally, inflation is going to stay higher for longer and we still… I mean it’s been quite a while since, and this isn’t just under Warsh or Trump, of course, but inflation has been above the Federal Reserve’s target for quite a while now and they’ve talked about the difficulty of that last mile. Well, I think the Federal Reserve now needs to walk it.

And if that walk falls on Kevin Warsh, and that is awkward for him in his position, and he’s probably promised Trump that he doesn’t want to raise interest rates, I think they should just sell it as if Trump wants lower 30-year mortgage rates, this is the easiest way of doing it.

That really, if you’re raising interest rate, it doesn’t really matter that much, but you are essentially making mortgages more affordable and maybe that’s what they do. We’ll see in the coming weeks and months.

[01:01:19] Kevin

Yeah, it’ll be fascinating. I’m not optimistic that they’ll be able to walk that last mile, but as you say, we’ll see.

Well, listen, Robin, that’s a good place to wrap up. We really appreciate you taking the time. It’s a fascinating book and we wish you all the best with the launch.

[01:01:41] Robin

Thanks, Kevin. I really appreciate it. And yeah, I love being here and I’ve been looking forward to it.

[01:01:47] Kevin

Excellent. Excellent. Well, we appreciate that.

Okay, the book is called A Fabulous Debt, the Epic Story of How Bonds Built the Modern World. It’s out September 29th and make sure to get a copy. As always, what we’ve talked about today really is just a tiny fraction of what you’re going to learn from the book. It’s really worthwhile, it’s fun, and I recommend it. So, that’s it for today for all of us here at Top Traders Unplugged. Thanks for listening and we’ll see you next time.

[01:02:17] Ending

Thanks for listening to Top Traders Unplugged.

If you feel you learned something of value from today’s episode, the best way to stay updated is to go on over to your favorite podcast platform and follow the show so that you’ll be sure to get all the new episodes as they’re released. We have some amazing guests lined up for you and to ensure our show continues to grow, please leave us an honest rating and review.

It only takes a minute and it’s the best way to show us you love the podcast. We’ll see you next time on Top Traders Unplugged.

This podcast expresses the views of its hosts and the guests appearing on the podcast as of the date of its recording, and such views are subject to change without notice. Top Traders Unplugged do not have any duty or obligation to update the information contained herein.

Furthermore, Top Traders Unplugged make no representation to its accuracy and it shall not be assumed that past investment performance is an indication of future results. Moreover, wherever there is a potential for profit, there is also the possibility of loss.

This content is made available for educational purposes only and should not be used for any other purpose.

The information contained in this podcast does not constitute and should not be construed as investment advice or an offer to sell or a solicitation to buy any securities or related financial instruments in any jurisdiction.

Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Top Traders Unplugged may believe that the sources from which such information are obtained are reliable.

However, Top Traders Unplugged cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This podcast, including the information contained herein, may not be reproduced, copied, republished or posted in whole or in part in any form, without the prior written consent of Top Traders Unplugged.