The Market for Confederate Cotton Bonds

Abstract

This article investigates the determinants of Confederate cotton bond prices during the American Civil War. Specifically, this study examines the more than doubling of cotton bond prices between December 1863 and September 1864, even after critical defeats of Southern armies at Gettysburg and Vicksburg in the summer of 1863. A vector autoregression analysis of the war debt prices indicates that an increase in the price of cotton can largely account for the large upward movement in cotton bond prices during this period. The ability to convert the war bonds into cotton provided investors insurance that hedged against war risk.