Professor Geert Rouwenhorst recently spoke with Rob Young at BBC – Business Daily. In the episode “Bonds: Heroes or villains” he discussed Yale University’s 378 year-old Dutch bond, housed in the Beinecke Library. The 1648 document, issued by Hoogheemraadschap Lekdijk Bovendams, a water authority, incredibly, continues to collect interest every year.
Podcast transcript (04:58 – 09:01):
RY: That mention of the Netherlands is a great opportunity to talk about a piece of living bond history from there. Let me take you back to 1648. Picture this, a water company in the famously wet Netherlands needs cash to build a levee. It doesn’t raise taxes, it borrows money by issuing bonds. The IOU isn’t written on paper but on vellum, goat skin, almost four centuries old, and one of those original bonds survives and it’s still collecting interest. The bond holder is Yale University in the United States.
RY: Hi Geert. How are you doing?
GR: Very well, thank you.
RY: Geert Rouwenhorst, the Dutch Professor of Finance at Yale showed me his prized possession over a video link. It’s history you can hold in your hands and proof that bonds aren’t just about money. They contain stories that stretch across centuries.
GR: It’s a manuscript bond, which means it’s sort of written on vellum, actually, at that time and what’s unusual about this bond is that it still pays interest.
RY: Can you read what it says? The writing looks incredibly old.
GR: It is old and if you just look at it first it just looks like an old manuscript. Although I’m Dutch myself, it wouldn’t occur to me at a first look that this is actually a Dutch bond. The language itself was quite different from the way we sort of write and construct sentences today. So it is actually hard to read. When we acquired the bond, I actually contacted somebody with the knowledge of Medieval Dutch to kind of decipher what the bond was really about. It’s an obligation to pay interest over the equivalent of 1000 Carolus guilders which was the currency in the mid-seventeenth century in the Netherlands.
RY: And what was the original loan for? Why were these bonds issued?
GR: The organization that issued it is a water board or water authority. Their objective was to help defend the country against the water. If there weren’t any system of levees in the Netherlands half of it would be, you know, underwater and a big flood plain. So, these water authorities were these semi-governmental organizations that were set up to kind of organize people to join forces to combat the waters.
RY: And so you are still collecting interest on this almost 400 years after it was first issued, which is incredible, isn’t it given that presumably most bonds aren’t around for anything near that length of time.
GR: So there’s a number of reasons why it’s incredible and the first is that the instrument has survived. If we would have lost this bond, the physical document, there’d be nothing to present to collect the interest. So in some sense that’s a miracle. The second thing is that many of the perpetual bonds that were issued have call provisions which means that the issuer could at some point raise their hand and says, you know, enough already I’m going to just repay my obligations. Although they were issued to remain in perpetuity, I have the right to basically, you know, to repay these bonds early, but this one actually is not callable. That’s unusual about this.
RY: So your university then will continue to be entitled to annual interest payments forever.
GR: Forever. Now it’s not going to be, you know, a huge amount. As we said, it was 50 Carolus guilders. Carolus guilders don’t exist anymore. We collect the equivalent of about 11 euros and, uh I have it here in front of me. It’s eleven euros and thirty-five cents on this bond, about thirteen dollars. So every so many years we collect annual interest on this bond.
RY: I imagine the flight cost is considerably more than the interest payment you collected.
GR: I was actually visiting family so it kind of all worked out.
RY: And how long do you think you’ll be able to store it for before it disintegrates in some way.
GR: Vellum is incredibly sturdy. This could live for another thousand years, no problem.
Related articles: “Infinity has a price” Goetzmann, W., & Rouwenhorst, R. G. (2023, March/April). Infinity has a price: A 375-year-old Dutch bond that still pays interest to Yale. Yale Alumni Magazine.
