The Serious History of Bonds: Conflict, Conviction, Capital

victory_bondsIts 1919. Just like on this poster, a Canadian soldier, dressed in green slacks, a green shirt and a green hat looks out of two windows. In one, his future of prosperity: booming industry and economic security. On the other: a growing field of wheat, and his stagnant family farm. “Re-establish him! It’s up to us”, reads the poster, “Buy Victory Bonds.” The message was simple: rapid industrialization would help Canada recover and advance. And the fastest path towards that goal was to invest in the bond market.

During World War One, Canada was one of the first countries to begin issuing war bonds. The government began issuing bonds in 1915 to help finance the war effort. The USA soon followed suit — two years later, in 1917, the American government began issuing bonds of their own that served the same purpose of financing their entry into the war effort.

For many Canadians, a stamped government war bond wasn’t just an investment in their country, but a new way to think about money and investment — most didn’t have so much as a savings account. Back in the 1920s, perhaps because of the extensive educational effort needed, bonds were sold by traveling salesman, many of whom traveled house-to-house by bike! He might only sell one bond a week — but at 50-50 commissions, that was all he needed to feed his family. “In those days one bond sale a week would keep a man alive, three bonds a week would be prosperity,” said Sidney Homer, father of modern bond research in his writing about the bond market during 1920s.

But it didn’t stop there. The success of bond issuing program in World War One was repeated in World War Two: in February 1940, it took only 48 hours for Canada to raise $20 million in bond sales, and by 1945 Canadians bought over $12.5 billion in Victory Bonds. Immediately after the Second World War, while the world was rebuilding and repairing its wounds, the Canadian government turned once again to the bond market to fund its Postwar Financing Programs by issuing the first Canada Savings Bonds, launched in 1946. Customers purchased CSBs through payroll deductions, and over 16,000 employers participated in this plan to offer bonds to their employees. This, and programs like it, helped propel many Canadians to financial prosperity — and helped grow their bank accounts.

Government and corporate debt outstanding has risen steadily over 70 years in the US and Canada, from more than $3 trillion in current dollars in 1946 to more than $19 trillion in 2016. Historically, bonds have been used to raise money for important causes: wars, industrial development, and post-war rebuilding. The bond issuance market as such resolved the pressing need for capital during historically turbulent times, and subsequently flourished and continues to thrive to this day as the primary financing mechanism for government and corporate initiatives alike.


About Vuk Magdelinic:

Before founding Overbond, Vuk’s career spans over 10 years in capital markets and technology. As PwC Risk and Regulatory consulting manager Vuk led large digital transformation programs at Deutsche Bank and BNY Mellon in New York City. Prior to that he worked at CIBC Fixed Income trading floor in Toronto in structured products origination capacity. Vuk has collaborated on numerous publications addressing key trends in fintech innovation. Vuk holds electrical engineering degree from University of Toronto, MBA from Ivey school of business and is an avid abstract painter.