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Last week mainFT published my feature on the history of the bond market. A few people have asked about the 1648 Dutch perpetual mentioned, so here are some more details about one of the world’s oldest living bonds.
Spoiler alert, this is going to get historical, fast. If you’re not a scripophile (yes, an actual word) then this might not be for you.
There are two aspects that help explain the genesis of the 375-year old bond. Firstly, about a third of the Netherlands is below sea level, and secondly, it’s arguably the country that pioneered modern capitalism and finance.
To maintain the series of dikes and water barriers needed to prevent constant flooding, local potentates, farmers, clergymen and merchants set up a series of regional water boards called Hoogheemraadschap, or “high water authority”. The Netherlands was far ahead the rest of Europe when it came to financial matters, so many boards issued bonds to pay for their construction and repair.
In 1648 the Hoogheemraadschap Lekdijk Bovendams — which as the name indicates, was responsible for a 20 mile stretch of the river Lek, a branch of the Rhine — borrowed 1,000 Carolus guilders from a local businessman called Niclaes de Meijer.
In return for the money to build some groynes, he (or the bearer of the goatskin bond) was promised a 5 per cent annual interest rate in two semi-annual payments of 50 guilders on November 15 and May 15 — until the end of days.
Witness the fitness of this 375-year old perpetual bond.
Lekdijk Bovendams doesn’t exist any more, and even the issuance currency has disappeared. Carolus guilders became plain guilders, and then the euro in 2002. Most other bonds of this age are now just curios collected by financial history buffs.
But this bond remains a legal liability of Hoogheemraadschap De Stichtse Rijnlanden in Houten, even if centuries of inflation, currency changes and restructurings means that it now only pays out €11.35 a year to the current owner, Yale university’s Beinecke library.
Yale finance professor Geert Rouwenhorst acquired it on behalf of the university’s International Centre for Finance for €24,000 in 2002, which means that its current annual yield is about 0.05 per cent. That might seem pretty puny, until you remember that it’s more than the negative yield of many other highly rated European bonds for much of the past decade.
Periodically, Yale has sent an emissary to collect the accrued interest and keep the bond “alive”. Here’s a picture of Yale curator Timothy Young (left) picking up the last interest instalments from the thrilled Dutch water board in 2015.
Yale has to send someone because it is a physical bearer bond. Legally, you have to rock up at Houton with the bond itself to collect the interest.
Each payment is recorded in writing on the actual bond, but in 1943 they ran out of space, so each payment is recorded on a separate paper “talon”. You can see that in this video on the remarkable bond’s history:
Probably the best account of the bond and its symbolic role in the history of finance is in Money Changes Everything, a tremendous book by Yale finance professor William Goetzmann. There he poetically ruminates on how remarkable the goatskin bond is.
Popular culture in America seems to have a fascination with vampires: movies, films, and popular novels feature these strange humanlike creatures. This fascination may reflect a general interest in gore, but it may also stem from the notion that a vampire lives indefinitely. In Anne Rice’s novels, vampires bear witness to the passage of time. A vampire could have seen the building of the pyramids, the fall of Rome, the Napoleonic Wars, the invention of the airplane. A more benign version of perpetual life is envisioned in the book and 2002 film Tuck Everlasting, about a family that accidentally lives forever. Angus Tuck says “What we Tucks have, you can’t call it living. We just . . . are. We’re like rocks, stuck at the side of a stream.”
The Lekdijk Bovendams bond, like the Tucks, is a rock, stuck in the stream of Dutch history. For three and a half centuries, its owners (but who owns whom in this story?) have presented the document to the water board for payment . . . This happened in January 1944, at the height of the Second World War, when Anne Frank and her family still hid in the back rooms of their building in Amsterdam. The payments were first made in Carolus guilders; then Flemish pounds; then modern guilders; and finally, when Professor Rouwenhorst showed up at the water board, in euros. Through it all, the money has flowed, the cribbing has been maintained, and the service on its ancient debt has held fast.
However, it’s not the only perpetual bond that the Hoogheemraadschap Lekdijk Bovendams issued, the only one that survives today, or even the oldest.
The first one was sold in 1593, and total issuance came to about 100,000 Carolus guilders. The water board’s modern-day incarnation says it still pays interest on seven old legacy perpetuals. For example, there’s one from 1638, which was originally bought by the board of an Utrecht orphanage. It is currently owned by the Amsterdam Stock Exchange (or technically its owner, Euronext).
But here is the oldest — and almost certainly the oldest living bond in the world: a 2.5 per cent bond issued in 1624 to Elsken/Ellsjen Jorisdochter in return for 1,200 guilders to repair a burst dike.
What a beauty.
The 1624 perpetual bearer bond was in 1938 gifted by one of Jorisdochter’s descendants to the New York Stock Exchange.
Alphaville pinged the Big Board’s parent ICE to find out its current status and it’s still there, stored in the exchange group’s archives in Mahwah, New Jersey. For years the NYSE intermittently collected the interest and donated the proceeds to financial literacy programmes, but it hasn’t done so since it was acquired by ICE in 2012 and spun out Euronext. Which makes us a little sad.
It pays about €15 a year in interest, so ICE is due ca €165 from Stichtse Rijnlanden. Which, if it collects before the end of the year, would add about 0.0005 basis points to expected full-year 2023 net income. Ker-ching!
Further reading:
— How bonds ate the financial system.
Read the full article here