800 years of interest rates. Did high interest rates set off the Wars of the Roses or even Game of Thrones?

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Here is a light historical distraction, for those who take a long-term view.

We are currently in the midst of the third longest secular bull market in bonds ever (at 36 years), beaten only by one from 1441 to 1481 (40 years) and the record of 1605-1672 (67 years).

I know this because the Bank of England has just published a fascinating blog , and Staff Working Paper Eight Centuries of the Risk Free Rate.

The highest ever developed market real risk free rate, of 23%, apparently occurred in 1453 with the siege of Constantinople, when it finally fell to the Ottomans. The 26-year old Sultan Mehmed II had already conquered the important silver mines of the Balkans and there were fears he would disrupt Venetian trade. Only the subsequent arrival of gold and silver from the New World really ended the specie drought.

These ultra-high interest rates put our own history into some perspective, especially the Wars of the Roses.

1453 was also the year when Henry VI’s weak reign descended into the chaos with the loss of his French possessions after the Battle of Castillon. Like the siege at Constantinople, the losers at Castillon were for the first time bombarded into submission by artillery.

With the loss of its French possessions, the English crown also lost a substantial portion of its revenues, especially the tonnage and poundage on wine shipments from the Dordogne and Gironde rivers.
The financial situation was made worse by Henry’s lavish of devout tastes: spending much of his dwindling revenues on his foundations of King’s College, Cambridge, and Eton College. One might facetiously argue that those establishments continue to cause political trouble 700 years later.

No wonder a terrible civil war ensued. Everyone, including the King, was skint.

The data set has been culled and amalgamated from various sources, commencing with Prestiti perpetuals issued by the Republic of Venice. The first open market quotations are from 1285, when Prestiti apparently yielded 6.625%.

This year’s record low yields are not unprecedented. In the first quarter of 1946, US Treasuries yielded a similar 1.4%. Real yields were also a negative 5.3% due to a repurchase programme.

The Wars of the Roses are famously the inspiration for George R.R. Martin’s Game of Thrones. Although he does not mention yields, the fact the crown is heavily in debt to the Iron Bank is a backdrop to the plot and Queen Cersei is contemptuous of money lenders. I wonder if there was a bear market in bonds in Westeros too?

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