James Grant has a gift for the one-line demolition, and this weekend he aims it, gently, at a book he mostly admires. Robin Wigglesworth, the Financial Times columnist and editor, has written ‘A Fabulous Debt’ (Portfolio, 416 pages, $35), a love letter to the bond market that runs from 12th-century Venice to modern Washington. Grant, reviewing it in the Journal, offers the best definition we’ve read all year: “If the stock market is hopes and dreams, the bond market is sensible shoes.” Sensible — but not, he insists, automatically safe.
Wigglesworth comes close to saying there’s no such thing as a bad U.S. government bond. Grant answers with one number: 30-year Treasurys sold in 2020 at yields under 2% now trade for less than 45 cents on the dollar. The Treasury may well pay every coupon and return the principal on schedule. The holder who has to sell before maturity eats the markdown. No bond is safe by birth, in Grant’s telling; what you pay, how long you’re tied up and what it yields decide the risk. Or as the old Wall Street line has it, “There are no bad bonds, only bad prices.”
Four centuries of interest, 99% gone
Then there’s the bond Wigglesworth pays tribute to, which Grant turns into the review’s sharpest lesson. A Dutch perpetual bond was issued in 1624 to pay for dike repairs along the lower Rhine, originally yielding 6.25% in gold. It’s still paying — €13.61 a year now, on a 2.5% coupon, after its currency changed from gold and silver guilders all the way to the euro. Yale paid more than $27,000 for one at auction in 2003, though as a plain financial instrument it would fetch little more than $600, Grant figures. By Wigglesworth’s lights it’s a model bond, and fair enough: it has never stiffed a holder, and almost nothing else issued in its era still exists. And over 402 years it lost 99% of its real value. The debtor kept its word. The money didn’t.
Our read
This is Fixed Income (IN02), and Grant’s review is about the cleanest explanation we’ve seen of why the desk keeps safe money where it does. The longer a bond’s maturity, the harder a move in rates hits its price — that’s how a 30-year Treasury can lose more than half its value without missing a payment. Bloomberg’s long-Treasury index has returned −8.257% over the past 52 weeks, per the paper’s bond table. Inflation is the slower thief; the dike bond’s 99% is what it looks like given enough time.
So our safe money sits in Treasury bills and floating-rate Treasurys: iShares 0-3 Month Treasury Bond ETF (SGOV) in 49 model books and WisdomTree Floating Rate Treasury Fund (USFR) in 14, held at weight; nothing added. The latest 13-week bill auction cleared at 4.110%, a 52-week high, against a 0.45% average bank money-market yield. Long Treasurys aren’t on the list as a new idea, even with the 10-year at 5.276%; that’s a bet on rates and inflation, not a parking spot. If a long-bond fund is doing duty as your emergency money, take fifteen minutes to see what it’s done this year — better to check the forecast before you leave the house than to wring out your shoes after.