Better Offline - The Hater's Guide To Bonds With Rob Wigglesworth

Episode Date: October 14, 2026

In this week's Better Offline, Ed Zitron is joined by Robin Wigglesworth of the Financial Times to explain how both corporate and sovereign bonds work, why you should care, and what you need to know about the tech industry’s growing debt.Rob Wigglesworth: A Fabulous Debt: The Epic Story of How Bonds Built the Modern Worldhttps://www.amazon.com/Fabulous-Debt-Story-Bonds-Modern/dp/0593719182 https://x.com/RobinWigg https://www.ft.com/robin-wigglesworth  Save $10 off a year of my premium newsletter: https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/gzqwkv54e1 YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/  Discord: chat.wheresyoured.at Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [e-mail] omnystudio.com/listener for privacy information.

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Hello, welcome to Better Offline. I'm your host, Ed Zittron. What's awesome? Now, I've received a lot of lovely emails from you all about how you've enjoyed the show's slow descent into the madness of the financial markets. So I wanted to bring on one of the Titans of Industry. Authors of a fabulous debt, the epic story of how bonds built the modern world, none other than Financial Times journalist. Robin Wigglesworth, Rob, thank you for joining me. No, thanks for having me on, Edda. Been looking forward to it.

All right, so I'm going to start with a very stupid question. What are bonds and why should the average person actually care about them? Yeah, well, actually, it isn't a stupid question because people do get tied up in knots about this all the time, including sometimes people in finance. But they're basically tradable loans. You know how you can buy and sell a stock on a stock marker or an app or a brokerage? Well, bonds are just basically tradable pieces of loans. that you can buy and sell just like a stock. And, you know, that can be treasury bonds issued by the US government.

They could be guilt issued by the UK government. In Germany, they issue bunds in Japan, Japanese government bonds, but also big companies like Apple and IBM, they also issue these bonds, these tradable loans, to finance their big operations. Because the stock market doesn't actually finance that much. It's really mostly a way for investors to kind of cash out. But if I'm IBM,

or Microsoft, I want to raise a ton of money to invest in something new, like a new factor or a data center, I'm going to be issuing a bond to raise the money for that. Right. And of course, the French ones are called Obligation Assimeilabler du Trezor or Oates. Anyway, sorry, moving on from that one. So, and you have to be a corporation to issue a bond or a sovereign nation, right? Well, you can also be like a multinational organization, like the World Bank issues bonds, the European Union issues bonds. There are individual development banks that are kind of state owned or controlled, but not quite. You can be Chicago. In the US, actually, you have this insanely huge and vibrant municipal bond market that finances like sewage, hospitals, schools,

universities. But even the Church of England has issued a bond. It's kind of kind of where most people actually go to finance. There's over half of all debt in the world is actually in the form of bonds now. And pretty much anybody can issue it, even if you and I can't do it. That's interesting. So this is a very specific question. So do cities sell bonds on the public market? Do they sell them locally or is it some mixture of the two?

A mix. Typically, let's say if I'm Chicago and I want to sell a bond, I'll go to a club of banks. they'll act as the underwriters. They'll basically kind of sometimes basically buy the bond off me at a price and then sell it on to investors because they have contacts and the Rolodex of all sort of pension plans,

insurance companies, mutual funds around the Americas and the world. But they can also sell to individual investors. Like the municipal bond market in the US is I think four or five trillion. A lot of that is actually bought by individual people in their local municipality. But you know, you can buy,

I can go onto a brokerage and buy a little bit of a slice of a US treasury bond or even a German bunder or a UK guilt. Or in France, like it's on OATs. Yeah. But some of the stuff is kind of hard to source up. And, you know, most ordinary individual investors don't kind of spend lots of time going through the bond market. So this is another specific one. So when you go online and you look at the price of a bond, it's always shown in percentages rather than, then as the price of the bond.

Why is that? And how should a regular person understand that? Yeah. This is, I mean, this is definitely where things get a little bit loopy for a lot of people. So it's a bond. It's a loan with a fixed interest rate. So let's say if it pays 5% a year. Well, because it trades, like if you think the economy is going into recession

and everything's going down the drain and you don't want to buy, hold any stocks, you quite want to hold bonds. And that 5% looks really attractive. you might pay so much for that loan that it starts trading above the par value. So you're not buying $100, like $1 worth of bonds for $1, you're buying $1 worth of bonds for $1.10, for example. Right.

And then the price is above par. And in fact, even though you're getting 5% interest, it has a 5% coupon in bond market powers, the actual interest rate you're going to be getting is lower. and on the flip side. Because you paid so if the bond is paying 5%, but you paid more than the bond was worth, you're effectively getting less than 5%

just so that I understand. Exactly. That's it. Ah. Oh, okay. Yeah, and let's say if you think, let's see you're lending money to, I don't know, let's say Microsoft, and you think Microsoft is doing stupid things, it's investing too much in AI or whatever,

and you don't really want to take that credit risk. And you think maybe, look, I don't think Microsoft is going to go bust, but the bonds might start to weaken. Well, then you can sell it. It might trade below par, and that pushes the market interest rate, the yield that goes up, which is why you see in financial newspapers like the FT or the Wall Street Journal will often say that prices and yields move inversely. So if the bond price is going up, the yield is going down.

And if the bond's price is going down, the yield is going up. So generally, lower yields mean, that it's a solid, strong borrower. But you get less of a return from investing in it because it's safe. Because there's less risk. There's less risk. And the higher the yield, the more risk there is. And the more chances is that either you might not get your money back at all or that the value

of that bond might be eroded by inflation, for example. Right. So right now, the thing in the news, as you were well aware, is that the US Treasury, the 10-year dated US Treasury, so 10-year-long, loans to the US government. They are selling off, which means that the effective interest rate is higher. Why is the 10 year so important? Why not the five year or the two year or what have you? I mean, it's just custom. If you go back 20, 30 years, you could almost say that the 30 year treasury yield was the most important one. That was the longest maturity of treasury bond that the

US government would ever issue. And that was kind of what people looked at as a sort of an example of long bond yields. But then actually the US, and this sounds crazy for us today, but it was actually running such big budget surpluses in the 90s that it just stopped issuing 30 year treasuries. Oh. And basically then the 10 year just became the default what people look at. And it is, it's kind of, it's not super long, but it's not like a two year or five year or six year. A 10 year bond is just a very handy thing that almost every major country on the planet issues. So it's an easier kind of comparisons. It's not always apples to peers to look at Germany versus the US, but at least you can kind of compare 10-year yields. So that's what most people do. So I know I've seen a lot in the

news about how the US has a deficit right now is in there, spending more than they're bringing in, so they have to issue lots of debt. Why, I know it's kind of a silly obvious question. Why is that such a problem if the US is growing faster than it's issuing debt? Well, if it is growing faster than it's issuing debt, that's usually not a problem. And it's the one thing that kind of base, as much as the US government has borrowed an astonishing amount of money, I mean, it's over $40 trillion now in some form or fashion. But the fact that the economy in the US is growing at a pretty fast rate, and Geronys expected to continue to do so, it is a very large and dynamic in wealth country, that's why, at least I personally think I'm not worried about the US going bust anytime soon, really.

But yes, if you don't have that growth, or let's say if you're the costs of servicing that debt, the interest rates that you pay are higher than the rate your economy is growing at, well, then you can see stuff start snowballing. And then you also have a budget deficit on top of that. There's just a lot of things generally pointing in the wrong direction. Is that what happening, is that what's happening in France? a little bit but France both has a lot of debt it has a big budget

deficit and it has very little growth and that's kind of I guess the Achilles heel so it has some advantages over the US and it has some advantage over other countries as well France actually is a very wealthy country but they tax a lot already like it's a high tax system

the government's fairly big the US actually taxes very little compared to most other big rich countries so it could quite easily get on top of its debt problem if there was political will to do so. In France, there's both that kind of lack of growth. It's just growing very slowly. And the fact that politically, look, it's not like spending cuts are popular in any country in the world, but they're very unpopular in France. It's just a political system that doesn't really seem to be very receptive to austerity in any form of fashion,

which is why they kind of seem to go to the streets. Yeah, I mean, as French people, I love the country, I've lived there, but French people strike for fun. I mean, it's just like, it's a national pastime. If you give them actually something to genuinely be angry about, I mean, then, you know, they strike. They strike and they like the revolutions as well. So that's why investors are feeling a little bit more worried about those OATs that you mentioned, the French government bond market. So, data center bonds. So it seems that most of the data center debt has gone out there in a few forms. direct bonds from the hypers and then there's a lot of SPV and project financing

which isn't bonds. But it seems to how, perhaps I'll get to the question. How has data center debt issuance changed all of the bond market? Has it, because I've seen a lot of back and forth about whether it's actually doing stuff or whether it's not really changing. It's kind of hard to tell. No, I mean, it has transformed the debt market

over the past year. initially a lot of these big data center investments were financed by i mean there were some smaller these neocloud uh like a core weave they would have issued bonds to do so but most of the big hyperscalis the big serious companies we we talk about like uh amazon or alphabet and uh Microsoft they'll just pay for it they make so much money on their other products whether it's Microsoft's office or youtube or WhatsApp or whatever that they don't really need and they had to very little debt. It's important remember, they came into this AI boom with extremely little debt, like way more cash than they owed, way more cash. And they were just printing more cash all the time.

But then they were investing so much money that actually the cash they make from other businesses just hasn't been enough. So it started last year and this year is just gone kind of gangbusters. It's, I think, close to five, six hundred billion dollars worth of direct bonds, this kind of bonds you can see trading out there in the market every single day. And then, as you say, a lot of other stuff, like they are definitely getting more creative in how they raise money to pay for these data centers. Right. And so how does that actually change the market, though? Has it put an effect on government debt or not? That is the debate I was referring to. Yeah. Well, so for investors, it means that like the nature of the bond market has changed. So the bond market used to be very

dominated, like the corporate bond market for companies, used to be very dominated by, like, big utilities and waterworks and mining companies, like old world, old economy stuff. And the tech sector just didn't really issue bonds because they didn't really need to. They either fund themselves with venture capital, although it was so profitable they never needed to borrow. So the bond market just looks very different from the stock market. The stock market is kind of the mirror image. The stock market is obviously dominated by tech companies and has been for a very long time.

market hasn't. So they have rewritten and kind of reshape the nature of it. To what extent that is affecting and kind of forcing the government's borrowing costs to go up, that's debatable. Scott Bessent, the Treasury Secretary of the United States, argues that it has had a meaningful impact, that there's so much supply of these bombs, these hyperscaliers are hitting up the bond market for such enormous amounts of money that it is causing almost like indigestion. And that's raising the cost of borrowing for the US government. And how does that happen? Well, it's just like if you are an investor, whether it's like me, Robin Wigglesworth or I'm a bank somewhere or a pension plan or something, I have a choice in what I invest in. And I don't have an infinite amount of money. Like the

bond market, because, yeah, it's paying interest all the time. There's always money coming into the on market, but you don't have infinite amount of money. So if you have the choice between lending to the US government or lending to Microsoft and you think, well, Microsoft isn't as safe as US government, but I'm getting an extra half a percent. Let's say if I can lend to money to the US government for 5% a year for the next 10 years. But for Microsoft, which is pretty safe, I might get 5.5%. If I lend to Oracle, I might get 6, 7%. So you can see it's like a substitution essentially. But I think people underestimate just how vast the bond market is. I mean, globally, for my book, A Fabulous Debt,

I penned around $190 trillion at the end of last year. So we're probably close to $200 trillion now. So, you know, we're still talking about AI hyperscaler bonds of around half a trillion dollars this year. And that's astonishing. That's wild. But we're still talking, what, like three months' worth of, U.S. Treasury issuance. So it's big and it's having maybe an impact on the edges, but I don't

agree that this is like what's driving up the U.S. government's borrowing costs, as Scott Bassett seems occasionally imply. The music you love. Your favorite radio stations. Everywhere you go. The podcasts everyone's talking about. All in one place. And it's free. I heart radio. Whatever you want to hear. Listen anytime. Anywhere. Music. Radio. Podcasts. Unlimited. It's on the free IHurt Radio app

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Those are the very people Who I always say vote against their own economic interest, and they complain about the very thing they're receiving. It's raw. I knew that the issue of transgender athletes was not going well with a lot of black men. Roland Martin unfiltered. I went off, I said, this is exactly what I'm talking about. Y'all going to scream at Chanel, but you don't want to see a black luxury company in the same vein.

Catch Roland Martin's daily commentary on the Black Information Network. 12 seats, those are moving south. So if you Democrats, you don't wait to 2030, you better be hitting the ground going hard in the south now. And download Roland Martin unfiltered on the IHart radio app, Apple Podcasts, wherever you get your podcasts. Yeah, and I specifically wrote about this recently. I think there was an Alphaville piece. I can't remember if you wrote it or not, but it was the, maybe it's Bryce out. It was this kind of discussion of whether this is actually what is doing it when it might actually be the, the 10-year selling off, so the yield is going up or the expected yield is going up, is more to do with worries about the US debt and how effectively. It's that the markets might think that the US will be paying more interest in the future, or they should take more interest from the US government.

Yes, exactly. I mean, one thing I both love and find incredibly annoying at times with the bod mark, it's like an inkblot test, where people can see exactly what they want to see there. because at any given time, there's like 20 different factors that play in and with different strengths at different times. And bond yields, like the interest rates that their company or a government has to pay, can go up for good and bad reasons. Like if you think the US is in a once-in-lifetime economic boom

and the AI is going to be amazing and it's all gravy, well, actually, in a kind of a booming economy, you don't want to lend money through this government. You want to put money in the stock market or anything else that might benefit. Because you think it would grow. You'd think that the economy is going to grow. Yeah, private business. You just have more opportunities.

So actually bond yields are going up for good reasons, that the economy is booming. And you want that. On the other hand, bond yields can also go up if you're worried about, well, inflation is going to run out of control, that the Federal Reserve, the independence of the US Central Bank

is under threat from the Trump administration, that you're worried about the US going bankrupt. There are all sorts of reasons that can push bond yields up and down for good and bad reasons. Like if bond yields, like, if the US enters the recession now, bond yields will fall. That's not good news for us. We don't want that.

But if bond yields fall because, like, the government's credible, that's a good thing. But that means you can see whatever you want, and you'll have a lot of basically narrative games around this. Right. And I think, like, the AI bond boom is probably a factor, but it's only one factor. factor, and it's like lowercase F. There are other things like the Iran war pushing up the price of

energy, and that just flows into inflation almost mechanistically, and that means that central banks have to raise interest rates. That's like a far, far bigger factor. Right. That makes sense. So here's another question I have had an email or two about. So why do they measure it in basis points? So 0.01%. Why do they measure the movement of a treasury bond, for example? in that, or like even a general bond in that small of a measurement. Well, most because it just moves in those such small increments. Like, if you are a super junky, crappy company that might go bankrupt imminently, your bond yields might move by a percentage point a day.

Like, at one day, your bond yield is 8%, the other day it's 10% maybe. It will move around by a lot. But most bonds, and bonds are kind of mostly issued by ideally, countries and companies that aren't going to go bankrupt imminently, they move, don't move as much as the stock market. It's arguably why the bond market, despite being far bigger and more important, I'd say far more fascinating than the stock market, it doesn't get the same attention. It just doesn't move around as much. So a, let's say if the Treasury yield falls 10 basis points or 0.1 percentage point in a day, that's a big move for treasuries. But obviously it sounds pathetic.

if you say it is 0.1 percentage point. So we just say 10 basis points. Or if something shoots up by 20 basis points, oh, wow, that's a big move for treasuries. That's because the market is so big. And a small movement can really shift things. Yeah. I mean, especially the treasury market,

as much as it sometimes annoys me, but even when I sit, I live in Norway these days. And even when I borrow money from my bank here, I'm basically competing with the US government for money. Like my bank could always, buy a US Treasury bond or a Microsoft bond or a French OAT rather than lend to me. So that's why we're all basically in competition for capital in some form of fashion.

And that's why the US Treasury market as the biggest, baddest bond market on the planet basically sets the cost of money in a subtle way, but in a very real way for everybody else. So even if you don't buy treasury bonds, if you don't even have them in your pension plan that most people will have, you will be affected by the airburn flow, the treasury market because it just flows into like the cost of money matters in a thousand ways to so many things so it will affect your life whether you see it or not and that's the 10 year treasury price that generally does that yeah it's it's really the whole treasury market but yeah the 10 years just like is what we've chosen as the representative the easy shorthand for the treasury

market and that's a good proxy for the entire global bond market essentially makes sense So talk to me about junk bonds. What are we looking at there? Because I hear the term thrown around in general and by Elliot Smith once in the great song. But it feels like it can mean all sorts of things. Yeah. So the bond market, just for reasons of simplicity, is influenced by something called rating agencies. And these are three agencies are called Fitch, S&P and Moody's.

And they basically give grades, like a teacher gives a student grades on their paper. they give grades to how likely a company or a country or a town or whatever is likely to go bankrupt, to deferrent on its debts. And the best grade is a triple A grade. It's like, oh, wow, you're really good. I'm in Norway, Norway's AAA rated because we're obscenely wealthy from oil. The US used to have a triple A rating, but no longer has one because it has a lot of debt. But then you start getting further down. Below a level called triple B, and these kind of are silly letters, really, but that's what people say, it's kind of there be dragons. So anything from triple B to AAA is considered investment grade, like of varying quality, but broadly speaking, extremely unlikely to default. But below that is what people call subinvestment grade or high yield bonds because they usually have higher interest rates because they're shaky companies.

And what you and I typically call junk bonds as a sort of pejorative term, but not. always entirely unfair. I mean, they're not junk, but they're big companies there, but they're not as strong, they don't have as strong financials as like a Microsoft or the US government. So, and these bonds, so I know the hedge, was it investment funds or is it pension funds can't hold junk, right? Historically, it used to be so that almost nobody, no self-respecting gentleman, and let's face it back in the day, it was all men. would buy junk bonds.

Junk was actually something you became. Like, you weren't a company that decided to be non-investment grade. You were typically a big company who had hit bad times and got relegated out of investment grade and they were therefore considered junk. They were called the more poetic name is Fallen Angel. I was going to ask you about those. Because that happened to Ford during COVID, right? Exactly.

It's happened a lot of companies, really. But it used to be a massive thing. Like, if you were a big company and you had, it issued tons of bonds typically, but you're so indebted that the rating agency ejected you from the investment grade ratings into like double B or below. You would kindly call the fallen angel, but quite often saying, oh, you've been junk. You're a junk bond company now. And that's not something people wanted to do because all sorts of investors, like you say,

weren't allowed to buy that kind of stuff. But that has changed since the 80s. Now there's a vibrant junk bond market. and anybody can really, I mean, there are companies that literally aspire to be junk bond companies because they think it's more efficient, essentially. Why would it be more efficient to be a junk bond company? Yeah, it's kind of mind-bending, but it's because of the tax treatment of debt. Like, so you can deduct your interest payments, just as it with a mortgage.

So if you're a very indebted company, you can actually run quite a bit of debt. You don't want to be like imminently on the verge of bankruptcy every day. I mean, that's just very stressful if you're the CEO. But you can be a very strong junk company, like rated double B. And in that case, actually, you'll see a lot of private equity-owned companies that are quite indebted. So they're junk-rated companies, but they're on the strongest side of it, essentially. Because actually, there's so much money in that market now. It's not like the back in the day where people weren't allowed to invest.

So this was changed by a guy called Mike Milken, who I wrote about in my book. He changed that. it kind of changed to the perception that junk was bad. They actually pointed out, well, actually, these companies are forced to pay such high interest rates that even if a few of them do go bust, you still make way more money from investing in these sub-investment-grade companies. So now it's kind of a, dare I say it, almost a bit of a sexy, racy part of the bond market. Well, I know it picked up during COVID when the government set interest rates to basically zero.

Yeah. And because that was the only way to get any yield, I just dug into a lot of this on a recent newsletter, so it's fresh in my mind. But it seems that there is distress in the lowest quality ones, the triple C's. What's going on there? So triple C is the one just before the ratings agencies basically say you're dying. Yeah. I mean, triple C is kind of the lowest rung, but you're still paying your debts.

It's kind of the wrong that you are very likely that you could die. And that's why that's, you'll see. C, triple, junk bonds are actually a really good way of spotting economic distress. Because, like, the stock market is, as you know, Ed, the stock market just falls in love dreams and narratives and stories. So they quite often don't realize when there's, like, deep economic problems bubbling up from below. The junk bond market, because, like, if you buy a bond, the best you can hope for is

getting your money back. Right. You can never, you can't make 10x your money, 20x your money, 100x of your money in as you can in the stock market. Everybody dreams of buying Amazon or, you know, I guess, like Tesla when it was a teeny tiny company. But like in the bond market, you can't do that. So you're just very exposed to the downside. So bond investors are, as humans, they tend towards pessimism. And the junk bond market is the most vulnerable to economic downturns. So you'll see a little bit of skittishness in the junk bond market before you see anywhere else. And the way, the place you

see the fastest is the triple C part of the market because those are companies that might survive if the economy stays healthy but are exceptionally vulnerable because they've got so much debt that like whenever the economy turns they might very quickly keel over and that's where we've seen definitely like a bit of skittishness lately music you love radio stations everywhere you go the podcasts everyone's talking about all in one place and it's free Whatever you want to hear Listen anytime, anywhere Music, radio, podcasts

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If you don't when you have no power. It's real. Those are the very people who I always say vote against their own economic interest and they complain about the very thing they're receiving. It's raw. I knew that the issue of transgender athletes was not going well with a lot of black men. Roland Martin unfiltered.

I went off. I said, this is exactly what I'm talking about. Y'all going to scream at Chanel, but you don't want to see a black luxury company in the same vein. Catch Roland Martin's daily commentary on the Black Information Network. 12 seats. Those are moving south.

So if you Democrats, you don't wait to 2030, you better be hitting the ground going hard in the south now. And download Roland Martin unfiltered on the IHart Radio app, Apple Podcasts. Wherever you get your podcasts. So just so that I'm following you, because they are the most vulnerable, when things are turning, they're the ones that get here first.

Yes. They are kind of, I mean, to stretch a metaphor, if you're in a movie hall and somebody shouts fire, it's going to be the old people that don't get out of the door quickest. The old infirm that might not get out of the door and the mad scramble. And that's the Triple C companies. So those are the ones where you can kind of see worries. Where they already borrow so much money. they already pay such high interest rates. They have no margin of safety. They have no nest egg. If the economy turns south, they will get hit very quickly.

And yeah, even just bringing up their ratings agency right now, they're dependent on favorable business, financial and economic conditions to meet their financial commitments. So, yeah, that's fascinating. I never even thought of it like that, even though it's blatantly obvious. So here is another thing. Why is it, though, that, say, let's look at, CoreWeave or actually SpaceX is a better example. SpaceX got rated investment grade,

despite the fact that it has negative revenue. It lost billions of dollars. How is that possible? Because it seems like the ratings agencies will rate companies that in their current state would run out of money just because they could theoretically stop doing something stupid. What is the logic behind these decisions? Well, it's mostly, and it does get a little bit loopy at times, but it's mostly that SpaceX is valued so highly by the stock market. So companies and countries are very different, but companies have something called a capital structure. Like there's a herarchy of who gets wiped out. The last people are typically like, if you're a banker and you've lent to SpaceX, you've typically got all sorts of very fancy covenants in your loan documents, you're considered senior.

You will only take a hit if everybody else gets wiped out. And then you have maybe normal bondholders that just have normal securities. Then you might have something and it varies from company to company, but there'll be maybe some preferred equity or some mezzanine financing is called. But then the first people to get hit is SpaceX, ex-shareholders. So it's like a cushion. And when you say get hit, what do you mean? As in the value of their shares go to zero?

Yeah. So let's say if SpaceX was to declare bankruptcy tomorrow for some reason, then the equity is worthless. The stock is valueless. And it means that basically then you'll start getting hit and hit, then the bigger the losses, the deeper into the kind of the debt stack things start to eat. It's like how termites eating your house? They'll start eating the bottom bit first and the top you'll be fairly shielded. You could get out of the house.

So bond holders would get paid back out of the, or the top of the stack. the senior debt, they would get paid first. Yes. They always get paid first. Stockholders don't get paid anything at all, unless there's a dividend or anything like that. So the reason why SpaceX, to a large extent, is investment grade, despite having, like, on the face of it, fairly funky financials, is that there's so much value in that equity. like the stock market values SpaceX so, so highly, that it is almost inconceivable. Like they have a lot of cushion there, essentially.

They can probably always sell more stock. They can issue more debt. So the chances are they will be fine. Like the market has given them a big fat lifeline, essentially. But that can change fairly quickly. I mean, it won't go tomorrow or next year, but the market can also be very fickle about these things. How quickly will a company get re-rated?

Is there any kind of standard for that? Or is it just if S&P wakes up and looks at something and goes, oh, crap? It's very situational, as it were. Most times rating ages is check in once a year or twice a year. Like, they weren't checking on the US government once a year because we know nothing changes radically there. But they can, they can, so there will be like scheduled reviews for a credit rating. But there will also be like if obviously something big happens.

A great example of this is Wirecard, a German payments company that proved to have. Softbank portfolio company. Yes, exactly. Another one of SoftBank's favorites. They know how to pick them. But Wirecard ended up like proving to be a massive fraud. They had an investment grade rating and sold a bond. And actually there was one bond, I think, that literally went into default before they'd made a single interest payments.

that's very very rare that's so cool I love so well actually with that in mind I had a question about soft bank so soft bank apparently issues a lot of retail bonds in Japan

what are those well so different markets will have different characteristics I always joke that the bond market comes in more flavors than Baskin Robbins and and you know in some countries like Italy

they're like it's like a custom for ordinary Italians to buy bonds at their post office or the brokerage. There isn't that much history of that in the US, but you can buy treasury bonds directly from the US government, if you want to. The government set up a site,

you can do it on Robin Hood and stuff like that. But most countries, it's not that simple or straightforward to buy bonds. Most bonds are bought by big institutions like a pension plan on behalf of their investors, ordinary people. But in Italy, Japan, there is what they call a retail bond market.

There's a fairly big one in Germany as well, weirdly enough. But yeah, You can because everybody in that country might just be a bit more loyal, feel a bit more comfortable with you, feel a little bit safer, a household name. So it's easier for you to fund yourself at home by selling bonds to ordinary investors in your own home country, as it were. But soft bank borrows so much money. They borrow in all sorts of currencies around the world, really. And I know that Japan is, well, they're exiting this, but I know one of the reasons soft bank is,

banks sells those bonds is because Japanese government bonds have until recently not really paid interest. Yes, exactly. So Japan has had extremely low interest rates for really like 30 years until recently because it had this massive economic crisis and a huge problem with deflation and debt for a long time afterwards. And so bond yields and so the central bank just kept interest rates flawed at zero or even below zero for a period. And that, yeah, if you're a Japanese investor and in your bank account or even in like a government bond, you basically get zero. You're going to start looking for other stuff that yields a bit more. And that's like a huge boon for companies that want to borrow money. So we've seen a lot of not just Japanese companies, but a lot of other companies as well,

borrow in Japanese yen and then swap the yen for dollars if they want dollars or euros. And that is The yen carry trade. Yes. So carry is just basically, if you borrow money in a cheap country and that invest it in somewhere else where you hopefully make more money on those. So let's say if you can borrow yen at 1% for 10 years and invested in dollars yielding like a dollar bond at 5%. That's like a, in theory, and it's important to stress theory, that's like a 4% premium.

But the problem is that currencies move around a lot. So you can get easy to get wiped out on the carry. trade. So it's always one of those kind of popular things when the world is, looks safe and fine, and then it kind of blows up in people's faces when it suddenly doesn't. It's fascinating as well. I was reading a story about those retail bonds a couple of days ago and how Masayoshi Son, the CEO of SoftBank, has this incredible cult following, partly with sports fans, because there's a SoftBank sponsored team, but it's, there are regular people that buy the bonds because of Masayoshi son. It's just a completely different thing.

than you'd have over here in America, partly because we don't have zero interest rates or didn't for a long time. And so, like, a company basically steps in almost like a sovereign bond issuer. Yeah, it will just, like, maybe just benefits from low interest rates. But, like, interest rates were pretty low in the US for a long time, and that benefited all sorts of companies there, too. And that kind of investing, not to make financial returns, but almost like an expression of your identity. I mean, that's very much alive in the US. Just look at Tesla. Or even SpaceX, right?

We're talking about SpaceX. SpaceX is not valued as a normal company. It's valued as by Elon Fusk fanboys and girls who will just give him money because they believe in him. And it is not something that it is entirely divorced and unanchored for any sort of normal financial analysis. It's just what people do. But like what people are doing with SpaceX in the US for the stock, I guess I didn't know this about Japan, but like maybe Japanese investors are doing with soft bank bonds over there.

Kind of. Actually, this leads me to my final and most complex question. So with that in mind of all of the bonds that were raised during the interest free era in 2020, 2020, 21, talk to me about maturity walls. So how big is the, when I say maturity wall just for the listeners, it's a bunch of debt, bonds that were issued in when interest rates were low. in 2021, 2020, that are coming up for refinancing. How big a problem is this going to be?

Or is this problem already started? I have to admit, like, maturity war. So it's just basically, let's say if I'm like Wiggles Corp, and I've issued like a few bonds maturing in different years. So let's say I have next year, I only have a billion dollars worth coming due. The year after I've got like $4 billion. And then suddenly in 2028,

I've got like $10 billion coming due. you'll see this bar chart and it looks like a wall, which is why people call it the maturity wall. In practice, if you look at almost every big borrower and certain like a government that issues bonds every year, like every quarter, some big companies and governments will issue bonds, it will always look like a wall. So I speak as somebody who's written,

God knows how many articles over the years about worries about a maturity wall that, you know, always looks scary and could potentially, become scary, but as long as the economy is fine, then it's generally fine. But there is a difference now that, of course, some of these maturities are for companies that just, as of yet, don't make that much money. Like, the hyperscale is, most of them, Oracle except is still make obscene amounts of money. Well, Oracle's cash flow negative right now. Oracle is in a very weird spot, though, because they are threat. They run the risk of becoming a fallen angel. But I understand what you mean. Yeah, no, Oracle is definitely one that kind of sticks out.

All those companies could get in trouble, I guess, in theory. But like, they'll have to borrow a lot more before I really start freaking out about them. Oracle does look like the, the, the, the, thinner leopard in the herd, as it were. And this wall, it could hit. But most companies, like, it's what we screw up all the time. What people get wrong, is like the stuff that we know about is very hard to mess up. Like if you see a big fat hurdle ahead of you, you have to know and jump over it. You might,

maybe you won't be able to do it. But at least you have time to prep. You can do it. It's not like these companies don't know they have a bond coming due in January 2027, for example. They know they have to plan ahead. And as long as the company is not looking too shaky, they refinance.

Like most companies don't actually repay their debts. They just roll their debts. And that just means issuing more bonds to pay off the old ones. Yeah. So if Wiggles Corp has a billion dollar bond coming due in January 2027, I'll just at some point between now and then, issue another billion dollar bond to get the money before that comes due and repays that.

And normally that's not that dramatic. The problem is when that maturity wall collides with an economic downturn. So maturity walls in isolation, are very, really problematic. But if a maturity wall either is there, you see it with a company that doesn't generate a lot of cash. So, like, maybe investors won't be around to lend to them, or just the economy goes south at the same time

that you have these big payments coming to. Let's say if Wiggles Corp suddenly goes, like, starts losing lots of money between now and January, well, maybe nobody wants to lend me that billion dollars. And that's when things can get dicey. So the maturity wall is, I always kind of stress that it is not dangerous in isolation. And bond maturity has always kind of look like a scary wall and can be made to look like a scary wall. But when it's only primarily causes problems when it actually, that maturity walls happens to coincide with like deep economic recessions.

And those are unfortunately extremely hard to predict. Well, Rob, this has been genuinely wonderful. I'm going to direct everyone to download and buy and read your book because it's phenomenal. I'm genuinely really excited to have had you on because I think this is a subject that is very soon going to hit the tech industry quite hard. So thank you for joining me. Yes, no, thanks, I really appreciate it. I definitely think the tech industry is discovering the joys of debt. And quite often after that, people discover the destruction of their debt can cause as well.

So it's going to be interesting to see how things shake out. Thanks so much for joining me. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Mattersowski. You can check out more of his music and audio projects at Mattisowski.com. M-A-T-T-T-O-S-O-S-K-I.com. You can email me at E-Z at Better Offline.com or visit Better Offline.com to find more podcast links and, of course, my newsletter.

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