Why Do Berkshire Hathaway Bonds Have A Lower Yield Than Government Bonds? (BRK.A, BRK.B)

The title might sound crazy but that is what Bloomberg News reported yesterday.A story on bloomberg.com states that bonds sold by Warren Buffett's Berkshire Hathaway(BRK.A, BRK.B) are trading at "3.5 basis points less than Treasuries of similar maturity".

The story is very strange. Treasuries are supposed to be the safest securities. They are considered a risk free return on your money. So why are Berkshire Hathaway's bonds considered less risky than the US government's?

I think the answer is that the US is issuing so much debt that people see more risk in owning US government debt than owning debt of a solid company with a fortress balance sheet like Berkshire Hathaway. The US debt level keeps climbing and it does not look like the budget will be balanced any time in the foreseeable future. Therefore I personally would feel more comfortable owning bonds from a company like Berkshire Hathaway than Uncle Sam.

However, I left out one detail that makes this really bizarre. The 3.5 basis spread is on two year notes from Berkshire Hathaway versus two year treasury notes. I do not think anyone is concerned about the US Government defaulting in the next two years even if they have concern this will occur in 10 or 20 years.

So why is this anomaly occurring in the bond market? I have two possible thoughts. One is that the market is going out of whack. This happens from time to time although most of the time the market is efficient. Treasury note should have lower yields than Berkshire notes but the market is making a mistake.

My second reason thought is a simple issue of supply and demand. The US Government has been issuing record amounts of debt and has no plan to stop in the near future. There might simply be too much supply and not enough demand. This would push the yield on the two year treasury note to a level that would be atypical.