Debt of gratitude.
Uncle Sam might do well to spend more time borrowing from the playbook of Uncle Warren than borrowing to keep the government running.
Though Warren Buffett’s investment vehicle Berkshire Hathaway lost its AAA-rating last year, the Omaha, Neb.-based company’s two-year bonds are trading as if they’re safer than equivalent notes issued by the AAA-rated US Treasury.
According to data compiled by Bloomberg News, two-year debt issued in February had a yield that was 3.5 basis points less than comparable Treasury securities.
A lower yield signals the debt issuer doesn’t have to pay investors a higher interest rate in order to convince them to buy the securities, and suggests the bond market is more comfortable with Berkshire, even though its credit rating now stands at Aa2 from Moody’s Investors Service and AA-plus from Standard & Poor’s.
One reason for that could be explained by Buffett’s apparent decision to end his pursuit of GMAC’s Residential Capital mortgage-lending unit despite expressing interest in buying it as recently as two months ago.
According to sources familiar with the matter, Buffett is backing off from ResCap in part because he’s not interested in engaging in a bidding war for the money-losing business, which government-controlled GMAC recently decided to put on the block after several fits and starts.
Among those considering taking a run at ResCap are The Blackstone Group and investment giant BlackRock.
Buffett’s Berkshire is one of a handful of companies whose debt is trading at lower yields. Others include consumer products giant Procter & Gamble, pharmaceutical titan Johnson & Johnson and hardware chain Lowe’s.
While Moody’s & S&P have repeatedly reaffirmed the US government’s AAA rating, the rating agencies have warned that Uncle Sam’s rating could be in jeopardy unless steps are taken to trim the budget deficit. The Treasury has sold some $2.6 trillion in bonds since the start of 2009, bringing the US deficit to 10 percent of the US economy.
Making the situation even more precarious is that the pace at which Treasury securities make money for investors is slowing down, according to Bloomberg data, which show the securities are down 0.43 percent this month, after rising 0.4 percent in February and 1.58 percent in January.