WARREN BUFFET WARNING ON BONDS
Warren Buffett warned that debt investors faced a “bleak future” days after a sell-off pummelled
government bonds and sent reverberations through global stock markets.
The 90-year-old chief executive of Berkshire Hathaway told shareholders in his closely followed annual letter that it was best to eschew the fixed income market, in which the company is itself a large player.
“Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future,” he wrote. “Competitors, for both regulatory and credit-rating reasons, must focus on bonds. And bonds are not the place to be these days.”
Treasury prices slid dramatically last week, driven by shifts from investors who see faster economic growth taking hold. Optimism around a global expansion has also rekindled concerns about a
spike in inflation, however nascent, and the prospect that central banks may have to adjust their stimulative policies.
Many investors had moved to adjust their portfolios before the sell-off in Treasuries this week, buying lower-quality debt that offered higher returns. Buffett warned on Saturday that the move by insurers and bond buyers to “juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers” was a concern.
“Risky loans, however, are not the answer to inadequate interest rates,” he said. “Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim.”
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