Civil War Futures

How do you like that - 150 years ago, European bond traders were effectively betting on the outcome of the American Civil War.  And it appears they weren't too confident about the preservation of the Union.

Using the prices of Confederate bonds that traded in Europe during the Civil War, the economists — Marc Weidenmier of Claremont McKenna College and Kim Oosterlinck of Solvay Business School – retraced how European investors judged the odds of Confederate victory in the latter years of the conflict.

And their conclusion may come as a surprise to those historians who assume the North’s industrial might virtually guaranteed an eventual victory in the 1861-1865 war. “European investors gave Johnny Reb approximately a 42% chance of victory,” until the South’s defeat at Gettysburg in July 1863 sent Confederate victory futures plummeting, they found.
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The biggest weekly rise in the chances of a Southern victory came in late 1863 on rumors of peace talks between the North and South — the 19th century equivalent of fed funds futures rising on rumors of an intermeeting rate cut. Of course, the string of Northern victories led to a steady decline in investor odds of a Confederate win, and by the time Abraham Lincoln was reelected in 1864 “financial markets considered a Southern victory a low probability event,” the authors wrote.

Gives a whole new meaning to "war bonds".

[F]inancial markets weren’t as developed 150 years ago, and news didn’t travel quite as fast. Still, “by nineteenth century standards, this was a liquid market for a sovereign debt issue,” the economists wrote. In order to use bond prices as a proxy for Southern victory, the economists assumed that the North would pay off none of the debt in the event of a Southern defeat, while the Confederacy would have fully honored the debt had it won the war.

If he'd known, Napoleon III could've hedged his exposure to a Northern victory and the higher cotton prices it portended, which should have made him less inclined to agitate for the Confederacy.