Happy 400th birthday to the world’s oldest bond

https://www.ft.com/content/5122706e-39ca-4bbc-95cc-373188a9b1c9

by pseudolus • 2 years ago

327 150 2 years ago

ft.com

throw0101b• 2 years ago

See also Tom Scott on a different perpetual bond:

* https://www.youtube.com/watch?v=cfSIC8jwbQs

* Also: https://en.wikipedia.org/wiki/Perpetual_bond

recursive4• 2 years ago

Bond, Perpetual Bond

dotancohen4• 2 years ago

Interest compounded, not simple.

hk__2• 2 years ago

In return for her money, the water board promised Jorisdochter, her descendants or anyone who owned the bearer bond 2.5 per cent interest in perpetuity.

This is inaccurate; it was 5%:

According to its original terms, the bond would pay 5% interest in perpetuity, although the interest rate was reduced to 3.5% and then 2.5% during the 18th century. [1]

[1] https://en.wikipedia.org/wiki/Perpetual_bond

77pt77• 2 years ago

So, not in perpetuity.

d0liver3• 2 years ago

Sounds like the Wikipedia article is talking about a different set of bonds, "Another of these bonds, issued in 1648, is currently in the possession of Yale University."

From the article, it looks like the original interest on this one was 6.25% (75/1200) though.

trgn3• 2 years ago

Where is the in perpetuity language in the bond terms? Doesnt it say until full repayment?

d0liver3• 2 years ago

Yes, but they never repaid it. They have just been paying out the interest.

trgn3• 2 years ago

ah thanks, I think I get it now.

"heritable annuity" is the perpetual interest. "until repayment" threw me off.

75/1200 = 6.25% though.

Where does the 2.5% interest rate quoted in the article come from?

evanb2• 2 years ago

[I also declare] to have awarded and given 75 Carolus guilders of twenty stivers apiece per year as heritable annuity, to be paid one half of the annuity aforesaid on the 9 th of June 1625 and the other half the 9th of December following and so on every six months until repayment with all payments entirely free of all taxes, impositions or burdens of whatever name or title none excepted.

It is confusingly written, but what it means by repayment in the above paragraph is not "until you get your 1200 guilders back in these 75-guilder installments", its meaning is clarified by the next paragraph,

On such conditions that I or my successors [unreadable] of the aforesaid Leckendijck may, at any time when it pleases us, extinguish, repay, and buy back the said annuity in full at once and not in parts or fractions with the sum of one thousand two hundred Carolus guilders

which explains how the board can get itself out of this obligation: by paying the original principal of 1200 guilders back.

trgn3• 2 years ago

Thanks, yes, very helpful!

mgolawala• 2 years ago

How is the exchange rate between modern money and "carolus guilders" calculated?

Something like a foreign exchange market cannot help determine this right?

In theory, could the exchange rate for $1 be made equal to 1,200 carolus guilders? (Effectively, making the bonds worthless)

crazygringo• 2 years ago

Thank you!

Curious why the board never paid back the original principal at any point in time over the past 400 years?

If the current annual interest of 2.5% cited in the article is €13.61, that would make 1200 guilders €544.40.

Did they just forget to? Did they figure the bond would eventually disappear? Or did they at some point think it was really cool to have a piece of "living history" and want to keep the world record alive for oldest active bond? If so... when?

OscarCunningham• 2 years ago

So if their available interest rates had ever dropped below 6.25% then the issuers should have bought it back?

jandrese2• 2 years ago

Do I understand this right that this is a public works project with effectively a 400 year old interest only loan?

andylynch• 2 years ago

Pretty much! (Securities like this are also something of a headache for compliance people since _technically_ they can be caught by current regulations not written with them in mind. Good luck getting an LEI for this bond’s issuer. (An actual concern I’ve seen raised by people responsible for such things)

bagels2• 2 years ago

For those like me that didn't know

"The Legal Entity Identifier (LEI) is a reference code — like a bar code — used across markets and jurisdictions to uniquely identify a legally distinct entity that engages in a financial transaction."

crote4• 2 years ago

I checked it, and the issuer of this bond (Hoogheemraadschap De Stichtse Rijnlanden) indeed does not seem to have a LEI!

gip• 2 years ago

This story also shows another facet of inflation: the amount currently paid is €13.61 a year. Effectively, that debt was killed by inflation over the years.

Inflation makes it harder for the current generation but also free future generations from your debts.

mitthrowaway2• 2 years ago

Doesn't that depend on which generation collects payments on the bond, and which makes the payments?

fsckboy2• 2 years ago

the view you are describing could be described as (or at least, i would describe as) "newtonian" interest/inflation, where modern thinking is more "einsteinian".

the interest rate of a bond isn't just "liquidity/the time value of money", it also contains expectations for future inflation rates. However, we never know the future, so inflation risk cannot be eliminated/hedged by any means, so being "wrong" about the future might harm or reward you.

furthermore, by portfolio theory, you would have needed to reinvest all the interest received from this bond immediately upon receipt as part of your evaluation of the performance of the bond (which, that being difficult to do is why we evaluate bonds at "present value"). All those past interest payments made would have been reinvested at prevailing (e.g. so-called "inflationary") rates and might have done extraordinarily well.

If you include all factors, this bond might have been the best investment she could have made, and it would be wrong to describe it as somehow "ravaged by inflation"; with nothing any better to do with her savings, it's the idea that money is somehow "fixed" and potentially permanent unless "eroded" that we should see as damaged, not the value of this bond.

moomin• 2 years ago

I think a more nuanced take would simply be that the long tail of a perpetual bond is unlikely to be worth that much, which is why these days bonds with extremely long maturities aren’t issued.

Mistletoe• 2 years ago

I would assume that bond was made in an era of low or no inflation. The yield of 2.5% would barely cover our current levels of desired inflation.

olalonde• 2 years ago

Indeed, the Netherlands at that time operated on a 'hard money' system. Coins were minted from gold, silver, and copper, with their value directly tied to the availability and intrinsic worth of these metals, naturally limiting the money supply. This is in contrast to modern fiat currency systems, where money derives its value from government decree rather than a physical commodity, allowing inflation through unrestricted money creation.

UniverseHacker5• 2 years ago

Inflation makes it harder for the current generation

It's not obvious to me that this is the case- if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation- doesn't it also just make any debt you have gradually reduce overtime?

flyingpenguin• 2 years ago

This is why being in low interest debt is so amazing. Take two people with the exact same job tracks, same appartments, family, interests, etc...

But give one of them $2,000,000 in mortgage debt at 3.0% interest on 3 properties that are rented out, and don't have the other have anything.

In 15 years, those properties will be worth 2-3x as much, and the debt will still be 2,000,000. This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.

caseysoftware4• 2 years ago

"if your wages go up with inflation, and you store money in stocks/bonds that keep up with inflation"

This depends on at least four premises:

a) that your wages at least track with inflation

b) that your expenses (not debt) track less than inflation

c) that you can buy into stocks/bonds before the inflation AND they track at least with inflation

If any of those are untrue, your conclusion falls apart.

If all three are untrue, your expenses are growing faster than your wages and the little you have left over is now buying already-inflated assets.. which we've seen play out once in recent times.

potato37328422• 2 years ago

Wages are a lagging indicator. Basically everyone who makes their money working and not off investments gets screwed roughly to the tune of the inflation rate. Eventually the economy reached equilibrium but in the intervening years everyone's discretionary spending gets redirected into the pockets of asset owners rather than quality of life improvements.

drdec5• 2 years ago

Inflation makes it harder for the current generation

Inflation benefits borrowers and penalizes lenders.

I would posit that younger people tend to be borrowers and older people tend to be lenders (bond owners).

That said, it's not clear what you meant by "the current generation."

Final note, inflation helps encourage people to use their money and keep the economy moving.

caseysoftware4• 2 years ago

Final note, inflation helps encourage people to use their money and keep the economy moving.

Short term thinking in itself is damaging.

But then thinking something is "worth more" because it costs more dollars a year from now is deceptive.. how much did its value increase vs the dollar decrease?

But it's convenient for tax authorities as you're taxed on the gains, regardless of the why/how it changed.

cma• 2 years ago

Final note, inflation helps encourage people to use their money and keep the economy moving.

The government offers inflation protected securities, matching inflation plus some usually minimal interest.

bormaj• 2 years ago

Final note, inflation helps encourage people to use their money and keep the economy moving.

That also means that costs are increasing, which may have the opposite effect

zhzjzjzbB• 2 years ago

Inflation benefits borrowers and penalizes lenders.

That occurs after the primary beneficiaries of inflation (those who receive freshly printed dollars) take their cut.

Final note, inflation helps encourage people to use their money and keep the economy moving.

This is just something people say. Programming equivalent of a factory class. Sure, it makes sense given Java’s language design, but when you realize the underlying design is awful and (at least for the modern US economy) out to hurt you, you look at things a little differently.

Inflation is just the rate which the population will accept without revolting. Constant inflation is not good nor needed, but we’d have to change a lot of our monetary policy in a way that results in a much smaller wealth gap (and military).

rvba4• 2 years ago

What you write is theory from economic books.

Reality is that the bank just indexes your loan with inflation, so you have to pay more.

Inflation is just a hidden tax on everyone - and people should protest against it. Great way of the rich (who are heavily invested in assets, not cash) and government (who gets cash inflows from the central bank - and central bank makes money by printing money) to screw the poor.

Aeolun• 2 years ago

Inflation benefits borrowers and penalizes lenders.

How does that follow? The only reason I can afford a house is because the interest rate is near zero. At a 5% rate I’d be priced out of the market, and pay 2x more money eventually.

nico3• 2 years ago

also free future generations from your debts

Only if the debt is not pegged to inflation

In Chile at least, you can get a loan in “UF”, which is an inflation-adjusted equivalent of the underlying currency. The value of UF changes with inflation (almost always going up). So the loan will just keep getting more expensive

Most mortgages there are in UF

jandrese2• 2 years ago

Debtors see hyperinflation in neighboring countries and start getting nervous.

tvaughan2• 2 years ago

Rents are in UF. I’ve never seen a mortgage in UF. Some savings accounts also pay “interest” in UF.

rvba4• 2 years ago

The banks nowadays know very well to index your debt with inflation

Spooky233• 2 years ago

The banks offload the obligation to Fannie Mae and collect commissions and administrative fees. With respect to mortgages, they function essentially as sales agents for the government.

asah• 2 years ago

survivor bias: bonds paying interest rates above inflation get paid off and replaced ("called"), leaving the bonds paying under the inflation rate.

pjc50• 2 years ago

People complain about inflation, which is very odd in the 2% era but understandable when talking about genuine hyperinflation. But, when talking about a four hundred year old bond, I would like people to think about all the population, political, technological and environmental changes that have happened across that period, look me in the eye, and say "yes, I expect every single item to have the same price that it did in 1624".

shadowerm• 2 years ago

It is worse than that though.

Credit markets don't work without inflation and none of this progress in the last 400 years happens without credit markets.

The age of this bond and the march out of the dark ages is not unrelated.

chgs5• 2 years ago

Inflation means we value work done in the future more than now.

And that’s right. If I do $100 of adding up numbers in 1950 that’s likely worth millionths of a cent in 2025.

raldi• 2 years ago

HN headline in the year 2400: "I SSHed into a box with a 146923-day uptime and found a cronjob still running"

qingcharles• 2 years ago

I found a server I used to host in 1996 still online, but I don't know where it is. Looks like it is running a 2010 version of Apache, though, so it was at least updated 14 years ago:

http://resworld.eolith.net/res.html

gerdesj• 2 years ago

It's in the UK somewhere: https://bgp.he.net/AS13037

jackcosgrove• 2 years ago

I'm curious if anyone has run the numbers and looked at what the interest payments of this bond over the past 400 years would have amounted to had they been invested in some theoretical basket of typical assets that were available at the time.

It sounds like a pittance now but 400 years of a compounding pittance could be a lot of money.

Edit: with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.

PepperdineG• 2 years ago

with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.

Reminds of Futurama with billionaire Philip J Fry after unintentionally leaving 93 cents in the bank for 1000 years.

dgfitz4• 2 years ago

I asked a bot to do the math for me (if anyone was as curious as I was):

93 cents would turn into approximately $17.88 trillion with compound interest of 3% over 1000 years.

93 cents would turn into approximately $4.28 billion with compound interest of 2% over 1000 years.

93 cents would turn into approximately $19,482.22 with compound interest of 1% over 1000 years.

paxys• 2 years ago

The issue would be finding an asset (or group of assets) that 1) held value and 2) you could maintain ownership over continuously for 400 years. Cities, kingdoms, countries, currencies, corporations, banks, markets all rise and go extinct over much shorter periods.

rtkwe2• 2 years ago

Monetary calculations in general are tough over that long of a timespan in general much less when you have to factor in the likelihood your theoretical investment would have survived the bakers dozen of financial/governmental crises.

NoboruWataya• 2 years ago

with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million.

Calculating the total return given an annual average rate of return is the easy part here. The idea that you can easily invest in a diversified basket of assets and receive a fairly safe x% a year is a relatively recent one. I'm not sure what assets you could invest in 400 years that would even be guaranteed to exist today.

wbl4• 2 years ago

The Hudson's Bay Company is almost old enough. https://en.wikipedia.org/wiki/Hudson%27s_Bay_Company

WorkerBee284742• 2 years ago

Japanese construction firms

nico3• 2 years ago

with an annual contribution of €13.61 and a real rate of return of 3%, 400 years of annual compounding would be over €7 million. With a rate of 4% it would be €280 million

400 years -> 280M

That gives you a perspective on how insane a billion dollars is. Also wild that any single individual can own that much (and some a lot more!)

WorkerBee284742• 2 years ago

Also wild that any single individual can own that much (and some a lot more!)

Nobody owns a billion dollars except governments.

"Billionaires" usually have ownership of business interests that could theoretically be sold for a billion dollars, but that they generally do not want to sell (because they would rather own and often run the business.).

IAmGraydon2• 2 years ago

Cool. Now take the 1,200 Gilder and invest it in that same investment vehicle at 4% and wait 400 years. It's worth $7,807,589,396.13

scyclow• 2 years ago

This is amazing, but I find it disappointing that the NYSE (current owner) hasn't collected interest on it since 2004. Given that most of the charm is that this is still an active financial document, I don't understand why they wouldn't keep it going. Otherwise it's just another defunct historical document.

caseysoftware4• 2 years ago

Because the bond has to be physically presented.

Moving such a document is extremely risky and a lot of work so not worth it in almost any case short of the PR bump/curiousity of having the "world's oldest bond"

bagels2• 2 years ago

Even if you didn't have to move it, getting a taxi to some meeting place would exceed the interest payments, let alone traveling to Europe.

seizethecheese• 2 years ago

Given this, we should be thankful that the NYSE is maintaining this at a loss. It occurs to me that NYSE might be the best owner of this bond, as the primary value isn’t monetary, but the demonstration of stable financial institutions.

mmiyer• 2 years ago

The article is about them collecting interest a couple weeks ago on the 400th anniversary? They clearly are keeping it going, just only collecting interest irregularly at PR milestones.

yieldcrv• 2 years ago

Bearer bonds exist in crypto and are extremely popular there, for anyone lamenting the loss of the concept

What I love about this is how in just the last 20 years, a lot of work has been done to jettison bearer bonds from existence in jurisdictions across the globe, and cause the “registration” of any existing bearer bonds so that they couldnt be grandfathered in

But no sooner than this advancement in global geopolitical hegemony was developed and leveraged, the crypto market reinvented bearer bonds and they work even better

kchoudhu• 2 years ago

CUSIP?

robterrell• 2 years ago

This has me hoping the Vesuvius prize finds an ancient Roman bond that needs to get paid out.

brnt• 2 years ago

Pity that the Holy Roman Empire dissolved a while ago.

axus• 2 years ago

It was neither Holy, nor Roman, nor an Empire.

patall• 2 years ago

Given that several states claim to be Rom's successor, it shouldn't be that hard to find someone to take the responsibility.

IAmGraydon2• 2 years ago

Interesting story, but as a bond holder, you're a lender. As a lender, you are exchanging inflation risk for interest. With this in mind, how could anyone think that a 400 year bond would be a good idea (specially at only 2.5%!). You have to remember that when buying a bond, your principal is tied up until maturity. On a 400 year bond, you're basically never getting it back. So you've handed your money to someone 15 generations in the future for what is initially a bad return and by the end of the bond's life is unbelievably bad.

By the way, if you take the 1,200 Gilder and invest it in an investment vehicle at 4% compounding and wait 400 years, it's worth $7,807,589,396.13 This woman basically traded almost $8 Billion of future return for a total of $5,444 including that principal that is returned at maturity. Ouch.

icegreentea22• 2 years ago

The original bond says 75 guilders per year until the principal of 1200 was repaid. That's 6.25% per year.

I don't think this investment was anywhere as dire as you paint it as. Especially in a world where monetary inflation was very different... currency debasement didn't typically happen that quickly.

pm215• 2 years ago

The lender in this case was living somewhere that was likely to flood if the repair works funded by the bond didn't get done, so they might have had some not purely financial motivation for it.

Plus we don't know what other investments Elsken Jorisdochter owned; this was probably a small part of her assets.

Finally, I'm not very convinced by the "400 years at 4% compounding" hypothetical -- could you actually buy an investment with that return at that date which was a safe non-risky one? And if you could, should you as a person with a lifespan much less than 400 years really prefer it over something which gives you a guaranteed income within your life?

Animats• 2 years ago

The UK government finally bought back its old consols, their perpetual bonds, in 2015.[1]

"Never sell consols" was good advice in the Jane Austen era.

[1] https://uk.finance.yahoo.com/news/uk-says-redeem-post-world-...

joshlemer• 2 years ago

I wonder if there's a market for novelty collector bonds like this.

jimnotgym• 2 years ago

There was a Tom Scott video about a similar bond https://youtu.be/cfSIC8jwbQs?si=352fpBnjG_2gs4CZ

spaceguillotine• 2 years ago

i have to laugh at their proposition that Bonds built the modern world... that was slavery buddy, all that stolen labor funded the markets of the world.

dotancohen4• 2 years ago

You are using a very modern lens to look at history - not recommended.

I say that as someone whose grandfather was a slave.

Beijinger• 2 years ago

Hey, you could buy a stock from Berlin Zoo. I don't think they every paid a dividend and it is difficult to buy one. Trading volume last month: 7 stocks.

But AFAIK it gives you free entrance in the zoo...

https://www.finanzen.net/aktien/zoologischer_garten_berlin_1...

mensetmanusman• 2 years ago

“Help us now please, don’t worry our children will pay your children”

Happy 400th birthday to the world’s oldest bond

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