How Bonds Ate the Entire Financial System

A very short, very wild history of the market that will shape the next financial crisis.

Bonds have long been considered the most boring bit of finance. They occasionally crop up in literature, almost always as a signifier of dreariness. The Great Gatsby’s narrator Nick Carraway was a bond salesman and Sherman McCoy in Tom Wolfe’s The Bonfire of the Vanities traded them. Bonds have never figured in the popular imagination in the same way as stocks, say, or corporate M&A. There has never been a “meme bond.” Ian Fleming chose the name Bond for his spy because he thought it was “the dullest name I’ve ever heard.”

Even so, they have played an integral role in the development of human society, from subsistence farming to the modern era, funding everything from wars and railways to Tesla’s electric cars and Netflix. “The bond market is the most important market in the world,” says Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater. “It is the backbone of all other markets.” While the bond market has become larger and more powerful, the importance of banks — historically the workhorses of the capitalist system — is subtly fading. The global bond market was worth about $141tn at the end of 2022. That is, for now, smaller than the $183tn that the Financial Stability Board estimates banks hold globally, but much of the latter is actually invested in bonds — a fact that some US banks have recently rued.