Title: Why Governments Are Afraid of the Bond Market (Robin Wigglesworth Explains)
Show: The Meb Faber Show (host Meb Faber)
Guest: Robin Wigglesworth — editor of FT Alphaville (Financial Times); author of "Trillions" and of the new book "A Fabulous Debt: The Epic Story of How Bonds Built the Modern World"
Date: 2026-09-11 (published)
URL: https://youtu.be/b6K7Pe8zohk
Length: 52:01
Note: YouTube auto-captions pasted by Stephen. Fillers (um/uh/"you know"/"I mean"/"like"/"kind of"/stutters/false starts) removed; wording otherwise verbatim — no paraphrase, no reordering, every (mm:ss) cue kept in place. The pundit is the GUEST, Robin Wigglesworth (host Meb Faber is tracked separately as meb-faber). The 00:00–00:56 cold open is a montage of clips from later in the episode. Sponsor reads (Upwork ~08:08–08:49; Cambria 351 ETF exchange ~33:14–34:13) and the closing disclaimer are kept for completeness but are not the guest's views. Auto-caption NAME garbles corrected in the body: "Me"/"Leb" = Meb; "Wuang Clan" = Wu-Tang Clan; "console market" = consol (British consols) market; "bonds exus" = bonds ex-US; "Besson" = Bessent; "Jaime Dyson" = Jamie Dimon; "condier" = condottieri; "banky" = banchi; "Jay Cook" = Jay Cooke; "Poyet"/"Pouyet" = Poyais; "Gregor McGregor" = Gregor MacGregor; "Milin"/"milking" = (Michael) Milken; "Solomon Brothers" = Salomon Brothers; "Nathan Mer Rothschild" = Nathan Mayer Rothschild; "Rosschild" = Rothschild; "bare bonds" = bearer bonds; "Jamie D. Curtis" = Jamie Lee Curtis; "RIPO" = repo; "leman beer stones" = Lehman, Bear Stearns; "Cole icon ... Larry Frink" = Carl Icahn ... Larry Fink; "guilt"/"guild" = gilt; "liabilitydriven" = liability-driven; "bun market" = Bund market; "Michael Sailor" = Michael Saylor; "Zer era" = ZIRP era; "Mung" = Munger; "Mark Brown ... John Gray" = Marc Rowan (Apollo) ... Jon Gray (Blackstone); "picking" = PIK (payment-in-kind); "Alphavville" = Alphaville; "Liz trust" = Liz Truss; "mefavorab.com" / "mebfrashow.com" = mebfaber.com. Producer "Colobby" kept as spoken. Context-evident caption mishearings also fixed: "very liquid assets" (32:04) = very illiquid assets (the ETF liquidity-mismatch argument requires it); "ameliating" = ameliorating; "shony" = shonky; "a crop" = a cropper; "gasar" = aghast; "princip" = principality; "London milk and honey" = land of milk and honey; "infl" = inflation; "fixing professionals" = fixed income professionals; "inscrupulous" = unscrupulous; "Camry" = Cambria. Words the caption track bleeped/dropped are marked [expletive] (45:14, 46:59). LEFT AS SPOKEN / UNVERIFIED: "Hooton" (the Dutch water-board bond issuer near Amsterdam — not guessed); "the A did" at 02:09 (garbled — presumably a bond index/yield); "chili shelling" at 35:09 (garbled, probably "shilly-shallying"); "covering the roses" at 44:44 (garbled idiom); "more volatile in the Bund market in Italy and Spain" at 42:18 (as spoken — meaning "than the Bund market or Italy and Spain"). NEVER turn an unverified garble into a ticker.

(00:00) Why are most people not up to speed on how big of a deal bonds are? [music] It's seen as the boring bit of finance, but I'd say it's certainly by far the most important. It is the bedrock to the entire financial system. The price of bonds is the price of money. Everybody thinks Horatio Nelson and the Duke of Wellington beat Napoleon.
(00:21)  I'd argue it was actually the consol market. The fact that Britain was able to even fight for so long was because it could fund itself almost infinitely at 3%. S&P 500 dropped almost 20%. And Trump didn't really care. And then he had two bad days on the bond market and Trump was like, "Okay, no, no, no, no.
(00:38)  We'll put a pause on Liberation Day." The bond market was getting yippy was his amazing word that he used. In the UK, the bond market managed to dump out a prime minister in 50 days. Generally, bond markets we always think of as the boring stuff, the stuff that should be functioning fine. It's where you hide when things are on fire elsewhere.
(00:56)  Well, that's become a little bit more unsafe. I got a quick favor before we get going today. We just crossed 40,000 subscribers on YouTube and we're trying to get to a 100,000 by the end of the year. And real talk, if we hit it, my producer Colobby has agreed to shave his head. I'm not making that up. I'm not sure we want to see it.
(01:14)  But if you got something out of these conversations, take two seconds, hit subscribe, like the episode. It's the best free thing you can do to help the show. Let's make Colobby bald. On with today's show. Welcome back, everybody. School is officially back in session. Today we got an awesome episode. Today's guest is Robin Wigglesworth, editor of FT Alphaville at the Financial Times, author of Trillions, which was the definitive history of index funds.
(01:39)  He's out with a new book called A Fabulous Debt: The Epic Story of How Bonds Built the Modern World. It's a thousand-year history of the market that quietly sets the price of everything else. Robin, welcome to the show. >> Well, great to be here, Meb. Thanks for the invitation. Why are most people not up to speed on how big of a deal bonds are and why are they so interesting? What inspired this book? Well, the stock market is more glamorous.
(02:09)  I disagree, but that seems to be the popular conception. You can watch even mainstream TV and they'll tell you what the Dow did on any given day. Nobody's going to tell you what the A did. It's seen as the boring bit of finance. But I'd say it's certainly by far the most important.
(02:25)  It is the bedrock to the entire financial system. The price of bonds. It's the price of money and it rules everything around us to paraphrase the Wu-Tang Clan. And I just think it's an amazing story. And actually, I knew a little bit of bond market history before I dug into this and decided to write an entire bloody book about it, but it's wild how many times bonds played a huge pivotal role in big turning points in history, especially in the US, which has for centuries embraced the power of the bond market more than
(02:58) any other country on the planet. It actually explains why the United States is today the world's hyperpower. It's not really the stock market and yet the stock market gets all the attention. But yeah, I'm going to just try and correct that a little bit because bonds are cool. And bonds, listeners, if you look at the global market portfolio, bonds are a bigger asset class than stocks.
(03:20)  That surprises people. So, we're now getting into the hundreds of trillions, but bonds globally, and last I checked, I'm going to have to look, but bonds ex-US were actually bigger than the bond market in the US, if you include foreign and emerging. But all this reminds me of a quote from Bill Clinton's strategist James Carville.
(03:39)  And you know what I'm going to say here, but I'll read it. He says, and I'm not going to do his accent, y'all. He's got that New Orleans, I think. He says, "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a 400 baseball hitter, but now I want to come back as the bond market.
(03:58) " You can intimidate everybody and you can choose to talk about Bessent today. You can talk about maybe it was about a year ago, Jamie Dimon was out and said recession might happen and Trump's like whatever. And then all of a sudden the Treasury goes from 3.8 to 4.5. And most listeners are like, that doesn't sound like that much.
(04:20)  But actually, it does. >> Well, especially when it's not supposed to happen, right? When stocks are crapping out hopefully, treasuries especially are going to rally, yields are going to fall. And it wasn't like that because of all sorts of reasons. And it was really telling that I think S&P 500 dropped almost 20%.
(04:41) And Trump didn't really care. And then we had two bad days on the bond market and Trump was like, "Okay, no, no, no, no. Pulls time out." We'll put a pause on Liberation Day. The bond market was getting yippy was his amazing word that he used. And I think it just shows that we think of bond vigilantes as beating up on small poor developing countries all the time, but even the US can come in the target and in the UK the bond market managed to
(05:09) dump out a prime minister in 50 days. Give us the origin story to the extent that we know it of the bond market. When did this really get started? Well, so it was in Venice in the 12th century, almost a millennia ago now. In 1171, the OG bond market is the Rialto Square. It was the first place that bonds were ever traded.
(05:33)  But anyway, Venice was super rich. It was the commercial hub of the world. It was the most vibrant financial center of the 12th century. And they traded with everybody and it pissed everybody off. They traded with Muslims, Christians, the pope, the Byzantine emperor in the east, everybody. And it annoyed everybody.
(05:52)  And in the end, Constantinople, the Byzantine Empire, decided to teach them a lesson and imprison thousands of Venetian merchants around its empire. And Venice thought, well, this can't go without any response. But they didn't have any money. Back then, states were teeny-tiny. They didn't have taxes even really in the way that we understand it today.
(06:14)  So what they did, the Doge of Venice decided, well, we're going to impose a forced war tax, a proportional war tax on everybody in the country or in the city really. And so the wealthy people pay more than the poor people. But we're going to treat it like a loan. We're going to give you 5% a year until we've kicked Constantinople's ass, got the money back, and we'll pay you back then.
(06:37)  and we'll pay you 5% in the meantime. And if you for whatever reason need to liquidate to become liquid again, you can sell the receipts. They made the receipts for this war loan tradable. So basically it was a tradable forced loan to the government. The government took this money, built a massive war fleet, sailed against Constantinople and then suffered from the plague.
(07:02)  So they had to return to Venice humiliated. They've lost the war. They brought the plague back with them to Venice. The Doge was murdered by his own citizens because of this. They were so angry at how embarrassed and humiliated they've been in this conflict. And that war loan became basically permanent because they couldn't pay it back for many years afterwards.
(07:25)  But it turned out that that was a good thing because essentially you suddenly had this piece of paper. It was typically paper or leather, with a sum of money written on it and you could trade it. You can get an income stream. You could use it as collateral for loans. And for the merchants of Venice, this was brilliant. This was amazing.
(07:46)  So, it transcended its roots and actually became useful. So, even when Venice could repay all of it, they just kept it as a semi-permanent stock of national debt and used it to lubricate finance. It became a bit like money. And from then the other Italian city states like Genoa, Florence, Milan, they all just copied it.
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(08:49) to put a pin on this. So to be clear, debt had existed before; they were sort of like bonds, merchants, lending, borrowing, all that stuff had probably been around since the time of the Romans. One of the key unlocks here to me seemed this tradability component cuz all of a sudden you now have a marketplace.
(09:06)  You now have that this can disperse across numerous citizens. It can move throughout time. So what did people look at Venice and say, "Okay, we like this idea. What next?" >> Well, this is it. It was born in war and it was primarily a wartime tool for most countries and towns.
(09:27)  That's how the Italian city-states used them. They'd sell bonds to the citizens to finance German mercenaries, condottieri, or Spanish mercenaries quite often. And then it spread as a tool of war. It's an efficient way of borrowing lots of money because if you hit up the money lenders in the town square in the Rialto for example, they were literally, that's how banks came, little wooden tables called banchi, there's a limit to how much money you can borrow from one person but bonds allow you to borrow money from
(09:55) hundreds even thousands and now today millions of people so it allows you to pool tiny little bits of money into one big sum of money and that was fantastic for wars. The Dutch, I think, were the ones that really first took it to the next level where they used it.
(10:15)  Large parts of the Netherlands are below sea level. So, they have to build this incredibly elaborate system of dikes, of waterways, and that was all paid for by bonds. And because of that, the Dutch had the most developed bond market of, let's say, this is around the 15th and 16th century.
(10:32)  But then they declared independence from Spain. And Spain was the hyperpower of the world at the time. It was the height of the Spanish Empire and the Netherlands was a collection of small states and towns in a place that people used to call the bog of Europe because it was so swampy and wet and they managed to beat, it took a hundred years, but they managed to beat this superpower because of the power of bonds.
(10:59)  So it showed you can use bonds for generally big projects. So fighting the elements, building this elaborate system of dikes and waterways to keep the water at bay, and to fight for independence or fight a war. And the Brits then took it even further. They were the first proper nation state to set up a national stock of debt.
(11:21)  It was called consolidated annuities because they consolidated all these annuities and that became the first risk-free rate in the world. That helped explain why Britain became an ascendant power in that era, but they just copied and pasted the Dutch idea. One of the challenges, the very most simplistic when we talk about bonds and debt is, are you going to give me my money back? And if so, what is the rate going to be? Are you trustworthy? Are you a rascal? Do you have a long history of not paying people back? And so,
(11:58) this concept of what is the correct priced rate, talk to us a little bit about that cuz I think it was the Dutch. It's a good point. And the nuance is that back in the day, most bonds were perpetual bonds. They had no maturity date. So, it wasn't like, oh, I'll pay you back in 10 years time or two years time.
(12:18)  The Dutch did start with corporate bonds. So, the VOC, the Dutch East India Company, first stock, the first stock market, it was also the first issue of corporate bonds. They had a maturity, but most bonds were perpetual. Essentially you issued them and you pay them back when you could. You could redeem them sometimes whenever you wanted or maybe after 5 years or something, but typically you had an option to redeem them.
(12:40)  And that's why people would lend to even shakier towns and creditors occasionally because you didn't expect to get it at a certain time. As long as they could service the debt, pay the interest, then it was generally okay. But when people worried, when the Dutch maybe looked like they were going to lose the war against Spain, those bonds were sold at a discount.
(13:02)  So the Dutch would issue them at face value. I would sell a 100 guilder bond but sell them for 50 guilders for example. And that's how yields evolved. But the Dutch were just incredibly mercantile about it and they took paying their debts super seriously.
(13:23)  To this day, there are 400-year-old Dutch bonds written on goat skin. I've seen them that still pay interest. One of them is owned by the New York Stock Exchange. >> I was going to say you're the only person who's been to a 400th birthday party for a bond. That's for sure. Tell us about that. >> Yeah.
(13:42)  No, >> what happened? >> It was off the hook, really. It was crazy. We had little cakes and bad coffee. Everything you'd expect at a 400th birthday for a bond really. So in Dutch, these water works, these utilities that managed the dikes back in the day, they evolved into proper modern dikes and utilities, water utilities.
(14:06)  And there's one, especially outside Amsterdam in a place called Hooton, issued thousands of bonds, but there are eight surviving that are over 300 years old. 300 years old. And the oldest turned 400 in December 2024. And because I'm a very sad human being, I was actually invited to this party and I ditched my family to go to this birthday party.
(14:29)  And it was worth it because I saw the dike it had financed. I saw all the pictures from the repairs that it had financed. It was actually in a very weird understated way incredibly thrilling, though it's probably not something that's going to compete with Disneyland anytime soon. What are some ones that really stand out as particularly insightful where it's changed the course of history, just this issuing some debt or having the ability to not service it, and on and on, that
(15:02) took a right on the fork in the road rather than left. Well, one of my favorite examples being at least half British is the Napoleonic Wars. Everybody thinks even in Britain that it was Horatio Nelson and the Duke of Wellington that beat Napoleon. I'd argue it was actually the consol market.
(15:20)  The fact that Britain, a small island country off the coast of what was then the superpower of the era, Napoleon's France, was able to even fight for so long was because it could fund itself almost infinitely at 3%. Whilst France, whose credit rating or basically de facto creditworthiness was shoddy, so it could just fund itself from small loans from banks all the time, is why Britain was able to fight for a long time, field a massive navy and subsidize allies in the German states and Portugal for example. In the United States, bonds
(15:57) I think in a very real sense tied the colonies together. When Alexander Hamilton became the first Treasury Secretary, he realized he could unify these different colonies that were becoming states into one federal country by giving them a vested interest in its survival by assuming all the state debts.
(16:19)  And it was super controversial because the north was very indebted and the south was fairly wealthy and would pay back most of its debt. Though famously Thomas Jefferson hated the idea and they had to give the south Washington, basically the seat of the capital, to get this deal done, but it helped bind the states together in a federal country and also just more practically the fact that you suddenly then had tradable American government bonds for the first time that were being serviced by the new
(16:50) federal government could act like money. It was a financial tonic for the economy after independence. And then the civil war came. One of the reasons why the north won was because it was far more adept at financing itself. That was Jay Cooke. He was an incredible guy really.
(17:05)  He looks like a mad Santa Claus with a big bushy beard and glowering eyes. But he was just a brilliant bond salesman. and he was able to sell so many bonds that even the south people were just aghast, like how can this guy raise so much money so quickly, but he managed and that helped bankroll the north's victory.
(17:29)  Talk to us about, as we walk through history, some of the more impressionable defaults or times when debt went a little haywire. Any ones really stick out? >> So many. It's like choosing my favorite child. There are too many examples but Jay Cooke is continued from him. He was the man after the civil war.
(17:53)  He was John Pierpont Morgan times 10 before John Pierpont Morgan was anybody. But then he frankly just lost his mind in the railway boom that happened right afterwards and these were the transcontinental railways. They were the AI projects of the 19th century. It was Titanic new revolutionary technology that was transforming the United States and invigorating the economy.
(18:22)  At first he stayed out of it and in the end his bank Jay Cooke and Co just decided they were going to bankroll one of the northern transcontinental railways and when that proved to just collapse and just was a bad idea the whole bank went bankrupt. And this is a bit like JP Morgan going bankrupt today. It just cascaded catastrophically, not just in the United States, but around the world.
(18:44)  It caused what was then called the Great Depression until the actual Great Depression. And economists now call the crash, the economic miasma that happened after 1873, the long depression, because I think it still is the longest economic downturn in US history. My favorite probably really, if I'm being honest, is Poyais.
(19:05)  Have you heard about Poyais? >> Oh yeah, you got to tell the story. I don't think we've mentioned this in nearly a thousand podcasts and it's one of the better stories in all of financial history. >> Yeah, so there was a guy called Gregor MacGregor, first of all just an amazing name, Scottish mercenary who fought in the Napoleonic wars in Portugal and Spain and then clearly was a restless soul, moved to Latin America, fought in lots of different independence conflicts as a mercenary.
(19:34) He fought with Simon Bolivar. I think he married his niece at some point. He's this incredible guy and then he went to basically Central America and was given the principality of a country called Poyais and then he went back to London, told everybody about this amazing country called Poyais.
(19:53)  It was a land of milk and honey and gold and it had a very established system of governments that looked quite like the UK and it was incredible. So he managed to entice hundreds of people to sell their belongings and move to this amazing country. And he also sold bonds to raise money to invest in gold mines and things like that.
(20:14)  But of course it all turned out to be just completely invented. It was just a giant scam. He even had people make up songs and hand out brochures about Poyais on the streets of London. And yeah, he just invented the whole thing. It was actually a barren bit of land on a place called the Mosquito Coast.
(20:36)  The settlers that went there, I think around 900 people that went there, most of them died from dysentery, famine, malaria, and so on and never made it back. And he took the money from those bond sales and bugged off to France. Pick out any you want to talk about. Whether it was Milken, local Angeleno, whether it was securitization, whether it was Rothschilds, anything you think would be an interesting topic about bond market evolution and innovation and maybe it worked out or didn't work out. Well, most of these have all worked
(21:13) out with one massive blip along the way. I always like to think and we've seen this through many cycles, right? That we humans come up with new ideas. We're incredibly inventive, especially in the world of finance where there's money involved and incentives skew that way. And the dumb ideas die whenever there's a big downturn.
(21:35)  But the smart ideas, they correct their infirmities, the dumb stuff, maybe the excesses, but they survive, right? They continue. So Rothschild is an interesting example where for example Nathan Mayer Rothschild in the 19th century in the UK turned England into the world's bank and that was through bonds. Everybody even in the UK today thinks, oh, it's the London stock exchange that matters, but the City of London as a financial hub was always built on the back of the bond market, not
(22:07) the stock market, and Nathan Mayer Rothschild is the father of that in many respects, but he turned the bond market into a truly international borderless market. So obviously it wasn't digital back in the 19th century but he managed to turn it borderless and some people hate that. It feels somehow stateless or mysterious or hard to control because of it.
(22:29)  But that does make the bond market that much more powerful. And a lot of the stuff that he did and he encouraged, he encouraged many of those changes that led to the disaster of Poyais and a big panic in 1825, though I should say the Rothschild bank knew things were going crazy and weren't involved at all.
(22:46)  But you can see these excesses come and go. Same thing with junk bonds, right? Mike Milken, I think maybe still to this day, is underrated as a financial pioneer and just an incredible person. And he's hugely controversial. He's probably even more controversial after being pardoned by Donald Trump. And he didn't invent the junk bond market, but he did transform what was a crappy little market for crappy companies that fall on hard times into a multi-trillion dollar leveraged finance machine that again,
(23:21) is controversial today, but is hugely valuable to thousands of companies around the world that would otherwise not be able to get credit. And it goes through cycles where we borrow too much money, there's too much credit extension, people have bought bonds unthinkingly. Salomon Brothers itself, I mean Drexel Burnham Lambert, Mike Milken's bank itself went under partially because of some of Mike Milken's shenanigans but also the fact that they went over their skis on some of these leveraged bonds,
(23:53) these leveraged loans and private credit as well back then. And it's a shame for lots of the Drexel people, but they went on to have many great careers elsewhere. And what they built endured today. It's this good five trillion dollar market, at least depending on how you slice and dice it.
(24:13)  And same thing with securitization later on in the 70s and 80s. Again, the name was mud after the financial crisis and lots of stupid things happened in the 2000s. But the reason why the Europeans are still to this day, or now suddenly talking so warmly about securitization, talking enviously about how they wish they had America's mortgage-backed securities market, is because it is a fundamentally good idea.
(24:40) That is actually net benefits for the world and the dumb stuff, the really truly dumb stuff, the frauds and things like that, they tend to get washed away in big downturns. So that's why sometimes those can be useful. Unfortunately, as you think about Milken, just reminds me the 80s and bonds were hot back then.
(25:06)  Look, you had double-digit bond yields. Everyone was pulling their hair out, gnashing their teeth about 5% today. If anybody's seen Die Hard, the plot of the whole movie, Hans Gruber, RIP, he was trying to steal a bunch of bearer bonds, sit on the beach, and earn 20%. That was his quote. What a great, [snorts] what a great, go watch that movie again.
(25:27)  Bearer bonds, by the way, listeners, you could go >> hand in the bond and whoever had it, whoever's holding it, that's the owner of record, right? >> Yeah. There's a great, you remember Trading Places as well? >> Yeah. >> With Jamie Lee Curtis, the hooker with a heart of gold.
(25:45)  She's also putting all of her money in treasury bills and she said I've got another seven years on my back and then I can retire on a beach earning whatever it was. I almost once went back and calculated how long would she have to work at that time. I think she underestimated it but by the time I looked at this in 2015 she'd have to work for 4,000 years to make the same amount of money because interest rates were so low.
(26:12)  RIP to your Google search after trying to search what the going rate for a hooker was in the year that movie came out. >> Walk us forward to today because there's probably no topic, if you turn on TV, the macro commentators love to talk about more, the economists, than just sovereign debt levels.
(26:34)  You had all sorts of people who've been talking about it for I don't know 20 years now about Japan, who have been talking about, hey, we have way too much debt. The interest is now more than the defense budget, on and on, relative to history. Maybe just talk to us a little bit about, these are in the hundreds of trillions now.
(26:59)  The numbers are incomprehensible how big they are. Is this something everyone should be pulling their hair out about? Can we put it in context? How do we even think about numbers so big? People have been freaking out about this for a very long time. And I tend to be very much on the relaxed side of the scale, albeit maybe 10% less relaxed now than I was 5 years ago.
(27:22)  But it's huge. The bond market is well over a hundred trillion dollars of government debt out there now. And in countries like the US, Japan, Italy, France, the UK, it's monstrous. And what is I think the reason why I'm worried more about it now than I was is that it kept ratcheting up in crisis and the repair period after a crisis, like after 2008 and after COVID, and now these deficits are just entrenched.
(27:54)  Right now, the economy around the world is doing okay. Not great in every case, but in many places it's doing pretty okay. In the US, it's strong. And yet we have budget deficits that we have not seen outside of severe wars in the past. So I think that's why people are right to worry.
(28:12)  This isn't something we should freak out about. But Jay Powell talked about this. He told some students shortly before he left the chairmanship of the Fed, he talked about the level is not unsustainable but the trajectory is not sustainable and that's the nuance, right? The US could solve its debt problems. The US is an incredibly rich dynamic economy. It could tax a bit more and spend a bit less and solve the problem, not overnight, but get back to health. In our lifetimes, in the
(28:45) '90s, people were more worried about what would happen if the US paid back all its debt. How could the global financial system work if there weren't enough treasuries to go around? People were worried about a treasury shortage in the '90s >> and now, weird times. Yeah, I know. It's weird.
(29:05)  Floppy discs, great music and debt shortages, but now it's a different world. >> Talk to us a little more about the modern world. As you research books, one of the best parts is just learning the stories, learning what people thought about them in the past, being surprised by this, that, and the other. Is there anything as you researched this book? And there's a lot, listeners, of these fun stories.
(29:30)  What are the ones that stuck out that we haven't talked about, or ideas around bonds that maybe people are mistaken about? There's two, one of which actually didn't make it into the book, that I think is fascinating and interesting and points more to the future. But the first one I thought about, I actually wasn't going to write a chapter about repo, the repurchase market, how people finance the leverage of the bond market.
(29:52) And it was fascinating learning how that evolved from frankly a bit of a gimmick that allowed the Fed, that was then just born in World War I. The Fed started repo as a way of helping banks finance US government bond purchases to finance America's entry into World War I.
(30:11)  And this kept going because then the 20s and 30s happened, the Fed wasn't independent until 1951 when there was this big Treasury accord, this big handshake agreement between the Fed and Treasury that the Fed could set monetary policy independently and step back from supporting the government debt market.
(30:30) But in the interim, it then brought back the repo program to help make sure that the private sector could step into the hole that the Fed was backing out of. And I just thought it was fascinating seeing how that evolved. And now repo in the US is a 12 trillion market that nobody really knows about and understands.
(30:50)  Even monetary economists I know who spend their life on this say that anybody who spends too much time looking at short-term overnight interest rates goes a little bit mad eventually. But I do feel like there's lots of, you can't really, it's like the dark matter of finance today. You can't always see it.
(31:12)  Most people ignore it, but it actually explains the motion of celestial bodies to a huge degree. I think in finance the repo market, whether it's equity repo or treasury repo, or 2008, Lehman, Bear Stearns, they weren't killed by a deposit run, they were killed by repo runs. There is a fair bit of repo in the book of course, but the new stuff that didn't make it in I'm regretting a bit is ETFs, fixed income ETFs. I've always been interested, like you mentioned, I've written a book on the history of index funds and ETFs
(31:44) and fixed income ETFs. I mentioned that they were growing. But what I think is fascinating is how they're starting to rewire the machine, the fixed income machine, especially in corporate bond markets where ETFs, we were worried that they were going to be toxic. It's a different market.
(32:04)  Bonds are different, especially credit does not trade that much. So you suddenly have a hyperliquid vehicle, the ETF, and inside it are very illiquid assets. And that mismatch is going to be lethal. Carl Icahn had a massive go at Larry Fink about that one time. But in fact, the ETF, and I did not expect this myself.
(32:24)  I wish I could say I predicted it, but it actually seems to be if not solving that at least ameliorating some of these liquidity issues. It's become a flywheel that accelerates the electronic trading of bonds, portfolio trading in bonds, systematic trading of bonds, and actually just generally making large parts of the credit world, at least the stuff that you can shove into an ETF somehow, more liquid.
(32:53)  And I think that's genuinely fascinating and is indicative of where we're maybe heading over the next 5 years, that the bond market is actually going to start walking and quacking a bit more like the equity market in some respects. It's not going to be the same, but it's definitely moving in a slightly more equity-like way in its ecosystem.
(33:14)  I think that's fascinating and a little bit scary. Today's show is sponsored by Cambria. Do you hold legacy investment positions with significant gains? What if you could transition into an ETF without facing a large tax bill? You can with a 351 ETF exchange. Here's how it works. Investors contribute stocks or other securities to a newly formed ETF in exchange for ETF shares.
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(34:13)  Past performance does not guarantee future results. All investments are subject to risk, including the risk of loss of principal. >> Talk to us a little bit about, I feel like most Americans when you say the words Liz Truss moment, they probably don't know what you mean. Most Europeans and obviously Brits very much know what that means.
(34:31)  Tell us that story because in my mind if you were to tell someone the bond market's going to take out the president, you'd be like what are you talking about? What does that even mean? But this was a real story that happened not that long ago. You want to enlighten us? >> Yeah, that was only four years ago now.
(34:51) It feels like yesterday. Liz Truss moment as a concept seems to have gone global everywhere except the United States maybe, but we'll see what happens there. But yeah, so Liz Truss was a prime minister in England who came in at a time where interest rates and inflation were going up.
(35:09)  It's 2022 and the UK has a twin deficit, both a current account and a budget deficit, and they're big and they've been big for a long time. So it's in a vulnerable state. Her view was that there had been lots of chili shelling around and she wanted to go for a big break with the past and people can agree or disagree but I think probably the instinct wasn't entirely wrong but she just basically went for a massive tax cut, a series of tax cuts, no spending cuts, and the bond market puked. Gilts sold off quite heavily but also in the
(35:43) background there are things, and this is I think sometimes underestimated in finance, sometimes even people don't always see this themselves, but there are strategies, or there's kindling that's built up, and in the UK gilt market, the UK government bond market, there was tons of kindling in the form of LDI strategies, liability-driven investment strategies, where essentially lots of pension plans, insurers, others, anybody who has a fixed liability, they match the duration of their assets to the duration of
(36:12) liabilities and de-risk, and it makes perfect sense, but some of these wanted extra. They'd get the yield from credit and they'd get extra duration synthetically by buying gilt futures for example or extremely long-dated gilts with leverage. And then when the gilt market started selling off with a violence that had never been seen before, well, all these pension plans were suddenly hit by margin calls.
(36:38)  So they had to just sell more and more gilts and basically it was just a massive feedback loop. So you suddenly saw moves in the UK gilt market I don't think we've ever seen in centuries of history. Not 08, not March 2020. It was just havoc. And in the end the Bank of England had to do this weird thing where essentially they had to say well we're continuing QT.
(37:00)  We're still selling bonds, reducing our balance sheet, but just for now we're going to buy bonds as well. So they were doing both at the same time just to make sure that this didn't snowball into frankly a solvency issue for a large part of the UK pension system. But of course mortgage costs, credit card costs, lots of costs are tied to the gilt yield.
(37:21)  So mortgage costs shot up across the UK. Liz Truss, maybe she was unaware and she should have known about this. But I think what really was incredibly inept was her handling of this once the crisis started. Her view was just power ahead. Go through. Don't listen to the stock market. Don't listen to anybody else around you.
(37:44)  And essentially in the end she was so toxic, she was so obviously out of her depth and the bond market was selling off, that her own party basically ousted her as party leader and that means you lose the job, and since then she's wandered around like a shell-shocked has-been trying to resurrect her career in the United States, quite hilariously, where nobody knows really who she is, like you say.
(38:08)  But it was the one time, the bond market has flexed its muscles many times in history but typically with smaller countries, and this was one of the most remarkable demonstrations of raw financial power, of somebody ousting a prime minister after just 50 days. She's one of the shortest serving prime ministers in British history.
(38:32)  And as you know the Brits have quite a long history. I think when people think about bonds, all they think about is this coupon, this magical beach of Hans Gruber, but the reality when tied to things like inflation and god forbid other countries, you go talk about the history of bonds in Germany or Latin America or other places, there was a totally different track record.
(38:53)  People get this wrong all the time, including even, like I say, fixed income professionals. A classic case is whenever I see somebody recommending TIPS, inflation-proof treasury bonds, and they think oh they should do really well if inflation is high, well actually no, the duration on those suckers is immense.
(39:09)  So, just look at how TIPS did in 2022. They got taken to the woodshed. But my favorite example, I don't know if you've ever looked at this, but Austria issued a Century Bond in 2021, I think. And obviously, just the skinniest little coupon you can imagine. It's a century bond. That century bond you would have lost way more than half your money on because obviously the value of that, once interest rates normalized, inflation went up in 22, 23, it just got absolutely annihilated. I think it dropped 80% of its value at one
(39:42) point. So that's a safe government bond of a country that's been around, has never defaulted ever, and you still would have lost 80% of your money if you bought that bond. The best example of the flip side of that is Argentina also issued a century bond around then and obviously this was comical because Argentina has never gone more than a few decades without defaulting.
(40:02)  And lo and behold, this century bond that they issued to show that they were finally a normal country. Well, they defaulted on it after I think 3 years. But because the coupon was so high, the payment that investors got, you would have done better in the Argentine bond even though it defaulted than in the Austrian century bond, which is still current.
(40:23)  The worst one was a UK inflation-linked bond maturing in 40 years. That just got, I think that in 22 that did even worse than Bitcoin. It was the trashiest of all the fixed income trash. And 22 was a bad year for bonds. When I first started this book, I thought 2022 would be the ending. Is this the death of the bond market? And obviously I knew it wouldn't be, but I thought that'd be the ending of the book.
(40:50)  But it's come back at least since then. >> As we sit here and take stock in 2026 and you look forward on the horizon and you're thinking about bonds and back to the story of innovation. Anything that scratches your brain, you're noodling on, you say, "Oh, I think this is really interesting or I think this is really worrisome or I think this topic is worth more research.
(41:13) " Well, ETFs is definitely one of the ones, fixed income ETFs I think are fascinating by themselves, but also the impact they're having in the trading ecosystem around that, investment banks are literally retooling their trading desks to build around this. Repo, I guess, as well actually, something I'm spending a lot more time thinking about just because one of the reasons why we've been able to carry so much more debt is because the financing markets have kept up with that.
(41:39) But I don't think it's healthy that so much of the treasury market, let's say to use the American example, is held by weak hands. These are hedge funds that go long, let's say, treasury bonds and go short treasury futures because there's a basis between the two.
(41:59)  But obviously that basis is so small it only makes sense if you lever up 10, 20, 30, 50, I've heard about, albeit only anecdotally, a hundred times, because you can get an immense amount of leverage on treasuries through the repo markets, and the US is extreme but this is definitely happening in the UK as well.
(42:18)  It's one of the reasons why the UK gilt market is a lot more volatile in the Bund market in Italy and Spain. Generally, bond markets, like you said, we always think of as the boring stuff, the stuff that should be functioning fine. It's where you hide when things are on fire elsewhere. Well, that's become a little bit more unsafe because it's held by more leveraged hands.
(42:36)  There's more leverage in the bond market now. Maybe not more than there was in 2008, but the repo market is certainly a lot larger. Many investors were led to the world of investing through bonds, 19th century, 18th century, 17th century. Stocks happened, but it felt like a little more wild west speculators. People love this idea of passive income.
(42:58) And the way bonds work, right? You pay a coupon, you get your money back. That's usually generally how they work. That concept of income has been transplanted onto all sorts of things here in 2026 and we talk about this a lot, that it's I think predatory and bad behavior. You have covered call funds talking about income.
(43:21)  You have all these other funds, there's essentially, Michael Saylor, my god, his bitcoin yield, his income fund, where he's talking, which is basically just a return of capital, which is not the same thing. No. >> And I feel like this general misunderstanding is hundreds of billions of dollars of assets. To me the regulators I feel like should be like, "Hey, we need to call this something different because it's not the same thing.
(43:47) " Your thoughts? >> No, agree. I think it's not just in the stock market. Broadly speaking, across the financial world, there's a lot of money to be made to make, let's say, certain bonds look more like stocks and offer you capital appreciation, make them seem sexier or more fun, or making stocks seem safer, having a steady income stream of some kind or another.
(44:08) And basically dressing up a fox to look like a goose or vice versa. And sometimes that works out and sometimes it doesn't. Speaking of stuff I worry about, some of the structured products that have abounded and grown in the ZIRP era I think have looked pretty shonky to me and I won't touch them because they're essentially very complex equity derivative packages gussied up to look like a safe savings product for ordinary people in South Korea or Japan or Germany or whatever.
(44:44) Whether it rises to the level of misselling, I'm sure people are pretty good at covering the roses these days. But I do worry about that, it's like Munger's old quote about show me the incentive and I'll show you the outcome, and the incentive in the world of money is to make money, right? And people are pretty good at this and we're pretty inventive and not everybody does so with suitable rigor and there will always be certain unscrupulous people and also a larger group of people
(45:14) who aren't unscrupulous, who think they're doing the right thing, think they're, let's say, democratizing access to private equity and private credit for ordinary people. Why should only rich people have access to this? And it's true and it rings true. It sounds true. But in the process, how that is executed, I'm sure there'll be many, many horrific stories about people getting sold absolute [expletive]. And that's what always worries me.
(45:41)  Private credit is one of those things that we didn't really get that much into today that has just been a massive story over the past 5, 10 years. Any general thoughts, relative to history, relative to worries? I think a lot of people who look at it, they're not quite sure what to think about it, this opaque thing over here.
(46:06)  But I like that I can allocate to it. What do you think? >> No, actually I spent a lot of time thinking about it weirdly enough just because I got fascinated by it over a decade ago, 15 years ago maybe when I first encountered it. When I started getting really worried was actually when I started getting cold calls from people offering me private credit loans.
(46:29) >> [snorts] >> when I was back in the US, and if anybody's calling a journalist and offering them credit then it's getting frothy, and my view has generally been, and I've had an argument about this, I once got told off very violently by a head of one of the big private capital firms at a drink, it was very funny, charming guy, but he thought I was overly mean to private credit, and I think the nuance I was trying to get through is that private credit has been very boomy, very frothy, way too much money has gone into it and
(46:59) all sorts of dumb [expletive] happens when that goes on. People just couldn't originate enough deals quickly enough, so inevitably standards have gone to [expletive] and they can hide a lot of that by finessing things. Obviously all this happens in private markets. You don't see it until it breaks suddenly, quickly.
(47:23)  You can change the loans to payment in kind, PIK notes. You can see that has gone up massively as these companies can't even service their debts. You can lend them new money if you think there's even a chance of keeping things on the road. A lot of the private credit money has gone into software cuz that was just another wheel to the growth capital private equity machinery.
(47:47)  But anyway I just think tons of stupid has happened there and there will be consequences. Where I differ from maybe some other people who have been writing about this is I don't think it's systemic. There is leverage and I think that's unfortunate but it's not nearly large enough, private credit or leverage, that it's going to cause a major issue.
(48:07)  I just think lots of people are going to lose money and be a little bit embarrassed and that's the way of markets and I actually think private credit as an asset class is fantastic. It's a great idea. I want that lending. I want more money to not be lent by the banks. I want that to happen in investment funds with locked up money. Ideally, that's fantastic.
(48:25)  That's way better. That's way safer for the financial system. So, I'm actually quite in agreement with people like Marc Rowan and Jon Gray, who all say that actually private credit helps de-risk the system. I don't think, there'll be nuances. There'll be frictions around that. But broadly speaking, if a dollar of lending is moving from a regulated bank to a private credit fund, overall that's actually safer for the system.
(48:53)  So, I both think private credit is going to come a cropper, I think there's a credit cycle now that's quite nasty and we just can't see it, but I hope that private credit, like most good ideas, will come through the bad times and keep growing in the future because I think it's a valuable part of the financial ecosystem that actually helps the world.
(49:16)  Reminds me of the Jeremy Irons quote from the meme from Margin Call. We're selling to willing buyers at the current fair market price. >> Well, I do, there are nuances around who, like I said, when this gets sold to retail. I used to be a bit more in [clears throat] favor of that, but I've become quite, I think some of these semi-liquid >> or supposedly liquid structures,
(49:36)  I just don't think it's structured that, I think it's dumb. One of my weirdest, out there opinions is that generally same-day liquidity or one-day liquidity is a massive systemic danger, that nobody should have that. It's not good for fund managers, it's not good for investors, it's not good for markets, it just leads to sub-optimal outcomes for everybody involved.
(50:03)  And yet, we've built an entire financial system around the idea that you should be able to get your money the next day at the very least. On that note, listeners, pick up a copy of A Fabulous Debt, the epic story of how bonds built the modern world. Robin, where do people find what else you're writing about? Pick up a copy of the FT.
(50:23)  Where is a good place to find your writings? Well, FT occasionally, but I've gone digital, man. It's the future. So I'm the editor of the FT's finance blog, Alphaville. I do a podcast on financial history. Super nerdy stuff, but really fun, great stories, called The Story of Money for the FT. And I spend also too much time on social media, though.
(50:42)  I'm trying to cut back on that. I figured out wine and social media is a bad combo. So, more exercise, more time with the kids. I try at least. Robin, thanks so much for joining us today. No, thanks for having me on, Meb. Really enjoyed it. Podcast listeners, we'll post show notes to today's conversation at mebfaber.com/podcast.
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