Berkshire: Bond Market Not Always Omniscient - Especially Lately

Includes: BRK.A, BRK.B
by: Tom Brown

Remember back in February, when Warren Buffett went on CNBC and announced that the bond guarantors didn’t deserve their triple-A ratings because the bond market, in its infinite wisdom, didn’t price their debt at triple-A rates?

I thought at the time he was being, shall we say, disingenuous. The fixed-income market was then (and still is) going through enormous turmoil, and was hardly the efficient credit discounting mechanism Buffett seemed to believe. Plus, he had just offered to reinsure the guarantors’ muni exposure for an exorbitant price, so was essentially talking his book.

Anyway, Wendesday night Berkshire Hathaway sold $1 billion of five-year debt at 168 basis points over Treasuries—the equivalent A- paper. Now, I don’t think Berkshire Hathaway should be rated A- just because the bond market suddenly says so. And I suspect Warren Buffett doesn’t think that either. . . .  

Tom Brown is head of