" Civilization-The West and the Rest" by Niall Ferguson
“Between Trafalgar and Waterloo, the average yield on French government rentes was two full percentage points higher than that of British consols.”
Please explain the above sentence in layman terms. I appreciate your feedback. Thanks.
davidmich
Not an economist, but isn’t that exactly the same as Spanish bonds fetching 7% while GB bonds remain around 2½%.
Basically the French economy was more stuffed than the British, and investors saw GB as a safer place to keep their money.
When you say “stuffed”, do you mean overleveraged?
davidmich
He means the economy was screwed up, largely because of the whole Napoleon thing. The British economy was stronger than the French, so French bonds (“rentes”) had a higher interest rate than British bonds (“consoles”).
Interest rates are a proxy for risk. The higher risk that you won’t get your money back means that you want more money (interest) to lend them money (bonds). That French bonds were a perceived higher risk is seen by their higher interest rates. Two percent is a pretty big difference.
Thank you all very much. Very helpful.
Interest rates on bonds also reflect inflation. When comparing the bonds of two countries, you might want to factor in the after-inflation rate of return to get a good sense of how big the risk from default is.