{"id":459772,"date":"2010-03-22T14:37:00","date_gmt":"2010-03-22T18:37:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-7578269391924330740"},"modified":"2010-03-22T14:43:13","modified_gmt":"2010-03-22T18:43:13","slug":"marketwatch-in-buffett%e2%80%99s-bonds-we-trust","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/459772","title":{"rendered":"MARKETWATCH: In Buffett\u2019s bonds we trust?"},"content":{"rendered":"

March 22, 2010, 1:02 PM EDT<\/p>\n

<\/small> Kurt Brouwer’s<\/small> <\/p>\n

Fundmastery Blog<\/a> <\/h5>\n

There\u2019s something going on around here. Why would AA+ rated corporate bonds sell for a slightly lower yield than AAA-rated U.S. Treasuries? Do investors trust Warren Buffett\u2019s financial management more than our Federal government? Apparently so. This Bloomberg piece points out some reasons for this [emphasis added]:<\/p>\n

Obama Pays More Than Buffett As U.S. Risks AAA Rating<\/strong><\/span><\/a> (Bloomberg, Mar. 22, 2010, Daniel Kruger & Bryan Keogh)<\/p>\n

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The bond market is saying that it\u2019s safer to lend to Warren Buffett than Barack Obama. <\/strong><\/p>\n

<\/strong>Two-year notes sold by the billionaire\u2019s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries <\/strong>of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe\u2019s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an \u201cexceedingly rare\u201d<\/strong> event in the history of the bond market.<\/p>\n

The $2.59 trillion of Treasury Department sales since the start of 2009<\/strong> have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating\u2026<\/p>\n<\/blockquote>\n

That\u2019s quite a number \u2014 $2,590,000,000,000 \u2014 in Treasury sales over the past year or so. Why are we issuing so many Treasuries. Because we can and because we must due to huge government spending initiatives.<\/p>\n

Take a look at this chart. This shows five decades of government spending by category. Only one category has been going up and that is the red line.<\/p>\n

\"catospending020210.jpg\"<\/a><\/p>\n

Source: Cato Institute<\/a><\/strong><\/p>\n

Bloomberg continues:<\/p>\n

<\/strong><\/p>\n

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\u2026While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody\u2019s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K.<\/strong> America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving \u201csubstantially\u201d closer to losing its AAA rating, Moody\u2019s said last week.<\/strong><\/p>\n

\u2026President Obama\u2019s budget proposal would create bigger deficits every year of the next decade, with the gaps totaling $1.2 trillion more than his administration projects, the nonpartisan Congressional Budget Office<\/a> said this month. <\/strong>Publicly held debt will zoom to $20.3 trillion, or 90 percent of gross domestic product, by 2020, the CBO forecast.<\/p>\n

There\u2019s \u201ca lack of a long-term plan to deal with the federal budget deficit,\u201d said Gary Pollack<\/strong>,<\/a> who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG\u2019s Private Wealth Management unit in New York. \u201cAt some point in time the market may lose its patience.\u201d\u2026<\/p>\n<\/blockquote>\n

Deficits as far as the eye can see. Lack of a long-term plan and an avalanche of new Treasuries being issued. It is actually remarkable that interest rates on Treasuries have not gone up much more than they have, so I guess we should be grateful for that.<\/p>\n

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