In the history of capital markets, a handful of sovereign bonds stand out as particularly transformative. There were the Dutch renten of the early 1600s, perpetual bonds that cemented the idea that a promise by the Netherlands can last longer than one by any king or emperor; the British consol of 1751, the bond that epitomized Britain’s ability to win wars by outborrowing and outspending its opponents; the US Liberty Loan of 1917, which marked the beginning of today’s Treasury market, the bedrock of global finance. All of them were elegant instruments that captured the imagination of bankers, savers and statesmen. They possessed the conceptual beauty of a mathematical proof — something that, once you see it, feels inevitable, as though it was discovered rather than invented.
Then there was the Brazilian C-bond of 1994. Part of the Brady Plan that turned defaulted bank loans into sovereign bonds, it immediately became the most liquid security in emerging markets, a bellwether whose yield was seen as a gauge of the health of an entire asset class. It was also incredibly ugly: Where the earlier sovereign bonds had the beauty of simplicity, the C-bond was a kludge designed by committee. If the consol was a well-constructed umbrella, the C-bond was a tarpaulin held up by nylon cords and duct tape.