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Warren Buffett's Warning: 'Bonds Are Not The Place To Be These Days'

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Warren Buffett's Warning: 'Bonds Are Not The Place To Be These Days'

In the annual letter to shareholders, Buffett analyzed the bond market and pointed out the abundance of negative yields that may steer participants towards too risky investments    

Warren Buffett, the legendary investor and founder of Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) — also known as "the Oracle of Omaha" — released the long-awaited annual letter to shareholders a few days ago.

Buffett Says This Is Not The Right Time For Bonds: With his longstanding experience, Buffett wanted to turn his gaze to the bond market and the current trend in interest rates, which is heating up the global market these days. Buffett was peremptory on the subject: “Bonds are not the place to be these days.” The debate on the bond market's short-term prospects is clearly open, and Buffett's stance — however authoritative — is just one of the opinions into play.

The U.S. Treasuries Performance: In order to explain his thesis, Buffett recalled that the income offered by the U.S. 10-year Treasuries has fallen by 94% to date from the 15.8% yield in September 1981. He said he was surprised how investors earn a negative return on billions of dollars of sovereign debt in important countries such as Japan and Germany, and predicted "a bleak future" for fixed-income investors around the world, be they pension funds, insurance companies or retirees.

See Also: Warren Buffett Says Berkshire's Apple Investment Shows The 'Power Of Repurchases'

Debt Risk Is Unsafe: Buffett warns that the responses to this low-rate environment might be worse than the problem — “Some insurers, as well as other bond investors, may try to juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers," Buffett said. “Risky loans, however, are not the answer to inadequate interest rates. Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim," he added.

Annual Conference In Los Angeles: In 2020, Berkshire Hathaway closed with an operating income of $5.02 billion during the fourth quarter, up from $4.42 billion in the same period last year. For the whole 2020, operating income fell 9% to $21.9 billion. The share buyback activity that started in 2020 will probably continue this year as well. In the same letter to shareholders, Buffett also announced that for the first time the company's annual conference will not take place in Omaha (Nebraska) but it is going to be held in Los Angeles on May 1.

This article originally appeared on Financialounge.com and was translated from Italian to English. It does not represent the opinion of Benzinga and has not been edited. For news coverage in Italian or Spanish, check out Benzinga Italia and Benzinga España.

 

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