NEW YORK, Jan 29 (IFR) - Warren Buffett made a
well-calculated move into the US corporate bond market on
Tuesday, issuing $2.6 billion of bonds before a possible spike
in Treasury yields later this week.
Buffett's Berkshire Hathaway Inc, rated Aa2/AA+, sold $300
million of three-year notes, $800 million of five-year notes,
$500 million of 10-year securities and $1 billion of 30-year
bonds. The proceeds will be used to pay off $1.2 billion of
floating-rate notes and $1.4 billion of 2.125% notes that mature
on February 11, 2013.
The deal came after a roughly 20 basis point (bp) rise in
the US 10-year Treasury yield in recent days as the outlook for
the eurozone and the US economy improved.
"Buffett is very savvy, in the sense that he seems to have
timed this issue before we have non-farm payrolls," said one
banker not involved in the deal.
"We've seen rates on the 10-year Treasury back up about 20bp
in the last few days and if we see another 20bp rise on the back
of good numbers it will definitely impact demand," he said.
Many credit strategists and asset managers have warned
investors to be wary of buying any corporate bond rated single A
or higher, because they are the most at risk of suffering
negative returns if Treasury rates rise.
That rate increase appears to have begun, with the 10-year
Treasury increasing from 1.8% on January 16 to 1.996% today, and
a high of 2.005% on Monday.
So far that has not been enough to impact demand for
high-grade corporate bonds, but some fear the Treasury yield
could jump another 20bp if January's payroll data released on
Friday are strong.
Already higher-rated corporates have seen less demand for
their new bond issues this year, at least compared with those in
the triple-B category. That's because their very tight credit
spreads offer little in the way of a cushion against a back-up
in Treasury yields.
The Berkshire Hathaway name, however, carries so
much cache among the investor community, that it attracted $8
billion of demand.
"Frankly it's the Buffett effect," said one bond syndicate
manager not involved in the deal.
"Berkshire Hathaway is a very good name and although it is
rated double-A, this type of name attracts strong private
banking demand," the syndicate manager said, referring to
private wealth asset managers.
There has not been a lot of double-A issuance this year so
Of the $95 billion issued in January, about 63% has been
from financial names, making issuance from a solid industrial
like Berkshire Hathaway all the more attractive.
The spreads at which the deal was launched were also
attractive versus the trading levels of comparables such as
Merck & Co or 3M Co, said one banker.
The three-year notes were priced at 37.5bp over comparable
Treasuries, the five year at 70bp, the 10-year at 110bp and the
30-year at 140bp.
One syndicate manager said Merck could do a new 10-year at
around 70bp over Treasuries.