A South Sea bubble in bonds

Investors in bond exchange-traded funds should heed the lesson of the South Sea Bubble, and sell out, says Paul Amery.

If you want a reason to worry about today's bond bubble, just look back a few centuries. The parallels are alarming for any bond investor. In 1694, the Bank of England was set up to take on Britain's national debt (then £1.2m!), in exchange for annual interest of 8%, permission to do banking business and a licence to issue "legal tender" banknotes.

Then, in 1711, a competitor, the South Sea Company, was set up to finance government debts, incurred during the War of the Spanish Succession. It was promised a monopoly on future trade with the Spanish colonies of South America, assuming that Spain would lose its war with England. When Spain held on to its colonies, the South Sea Company's fortunes faded, but only temporarily.

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.