“We're not buying corporate bonds of any kind now,” Buffett, 82,said Saturday during an interview with Bloomberg Television's BettyLiu in Omaha, Nebraska, where Berkshire held its annual meeting.“Not at those yields.”
|Berkshire held $12.2 billion of corporate bonds as of March 31,according to a quarterly filing issued on May 3. That's down 14percent from two years earlier. The value of Berkshire's equityportfolio climbed 54 percent to $97.2 billion in the two yearsended March 31 as markets rallied and Buffett added shares ofInternational Business Machines Corp.
|Yields on debt from corporate securities to Treasuries havetumbled as the Federal Reserve slashed interest rates and boughtbonds to help the economy recover from recession. The payout rateon dollar-denominated company debt fell to a record 3.35 percent onMay 2, according to the Bank of America Merrill Lynch U.S.Corporate & High Yield Index. Yields have averaged 5.87 percentduring the past decade.
|Apple, maker of the iPhone, sold $17 billion of bonds on April30 in the biggest corporate offering on record. Buffett, who hassaid he limited investing in technology companies in part becausehe doesn't understand them, said the decision to abstain from theApple offering was part of a broader strategy.
|“We're not buying bonds of Apple — we're not buying bonds ofanybody,” Buffett said Saturday. “It has nothing to do with thembeing a tech company. The yields are too low.”
|Apple's debt sale included $4 billion of 1 percent, 5-year notesthat pay 40 basis points, or 0.4 percentage point, more thansimilar-maturity Treasuries; $5.5 billion of 2.4 percent, 10-yearsecurities with a relative yield of 75 basis points and $3 billionof 3.85 percent, 30-year bonds paying an extra 100 points, datacompiled by Bloomberg show.
|Investors have flocked to bonds since the 2008 financial crisis,when the Standard & Poor's 500 Index of stocks fell about 38percent in a year.
|Corporate and municipal bonds “were ridiculously cheap relativeto U.S. Treasuries” in early 2009, Buffett said in an annual letterto investors in February 2010. “Big opportunities comeinfrequently. When it's raining gold, reach for a bucket, not athimble.”
|'Brutal' Problem
|The Fed has held its target interest rate for overnight loansamong banks between zero and 0.25 percent since December 2008 andis buying $85 billion of bonds a month. Buffett said Saturdayduring a question-and-answer session at the annual meeting that hepities people who have “clung to fixed-dollar investments.”
|“The problem faced by people who have stayed in cash or cashequivalents or short-term Treasuries, it is brutal,” Buffett said.“I don't know what I would do if I were in that position.”
|Buffett will collect a 9 percent dividend on the $8 billionpreferred stake Berkshire gets as part of a deal he struck inFebruary with 3G Capital to take ketchup-maker HJ Heinz Co.private. Heinz is rated BBB+ by Standard and Poor's, theeighth-highest of 10 investment grade levels. Apple has a AA+grade, the second highest.
|Berkshire has been burned by bets on lower-rated corporate debt.The cost of impairments was $85 million in the first quarter,compared with $337 million a year earlier, Berkshire said lastweek. The losses in both periods were related to bonds issued byTexas Competitive Electric Holdings.
|Bloomberg News
|Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.
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