Salient to Investors:
Berkshire Hathaway sold 5-yr and 30-yr securities offering the company’s lowest coupons for those maturities ever, while it has reduced its bond investments and corporate debt in the last 3 years, while fixed-income investments excluding mortgage-backed debt due in 1 year or less has grown to 25 percent of the portfolio, versus 18 percent in March 2010, and securities due in 5 thru 10 years declined 6 percent to 17 percent.
Richard Cook at Cook & Bynum Capital Mgmt said Berkshire issuing debt is effectively an efficient way to short the bond market.
Warren Buffett said Berkshire is not buying corporate bonds and pities savers who depend on bond interest and investors that have clung to fixed-dollar investments and for people who have stayed in cash or cash equivalents or short-term Treasuries, the problem is brutal. Buffett said anyone borrowing money now should borrow out for a long period of time.
Buffett has shown a preference for obtaining yield by providing financing to other companies with preferred stock at higher interest rates than available in the corporate bond market.
Bank of America Merrill Lynch data show the extra yield investors demand to hold investment-grade bonds instead of Treasuries is at a 5-yr low of 1.43 percent versus a high of 6.56 percent in December 2008, while investment-grade yields have fallen to a record low 2.65 percent from 8.59 percent.
Thomas Chow at Delaware Investments said it continues to be a good time to issue debt.
Bonds from Berkshire are the worst performers in the Bank of America Merrill Lynch US Property & Casualty Insurance index in 2013 thru May 7, rising an average 0.8 percent versus the 3.2 percent index gain.
Matthew Duch at Calvert Investments said Berkshire tends to be a name that people are either in need of or have too much of.
Guy LeBas at Janney Montgomery Scott said there are natural buyers of long-term debt who are not swayed by the relative value between debt and equity, and because there is little long-term debt sold, what is issued is gobbled up quickly.
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