An Introduction to the Bond Markets

Introduction

Trading in bonds or loans is not a recent invention. Although stock exchanges date from the early 15th century,¹ by the beginning of the 17th century trading and speculation in government stocks and shares in the Dutch East India Company on the Amsterdam stock market was carried out in a modern way. Although Amsterdam is often referred to as the ‘first stock market’, state loan stocks had been negotiable much earlier in Venice, in Genoa and before 1328 in Florence. There are references to French ‘Rentes sur l'Hôtel de Ville’ (municipal stocks) in 1522 and stock markets in the Hanseatic towns from the 15th century.

It appears that the Rentes sur l'Hôtel de Ville did not play the same role as annuities did in England, but remained a safe gilt-edged investment, which was often immobilized in an inheritance, difficult to negotiate and subject to tax on sale. Based on a French text² written in 1706, it compares the French situation to that pertaining in Italy, Holland or England where ‘State bonds (are bought and transferred) like all buildings, with no cost or formality.’ Moreover, the English annuities could also be regarded as an alternative currency, sufficiently guaranteed, carrying interest and immediately convertible into liquid cash at the Exchange. However, what was new to Amsterdam was the volume, the liquidity of the market, the publicity and the freedom to speculate.

The purpose of this book is to give a basic introduction to the workings of the securities markets ...