Buffett Bets on Rising Interest Rates

Interest rates are beginning to rise, and it appears that Warren Buffett must not see that trend changing over the next several years. His firm Berkshire Hathaway Inc. has $1.5 billion in floating rate bonds maturing later this month, so it has issued mostly fixed-rate bonds in their place. Sarah McDonald and Katrina Nicholas at Bloomberg report:

A unit of Buffett's Omaha, Nebraska-based holding company issued $750 million of 4.25 percent, 10-year notes yesterday priced to yield 95 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. It also sold $375 million of 3-year, 1.5 percent notes and the same amount of floating-rate debt yielding 33 basis points more than the 3-month London interbank offered rate, the data show.

So Buffett's hedging his bets a little with some floating rate notes, but this funding leans heavily towards fixed-rate borrowing, three-to-one. Since the cost of floating rate bonds would rise as interest rates increase, he must be counting on playing less interest with fixed rate notes.Of course, fixed rate interest rates should already incorporate what the way in which the market believes interest rates will rise over a given period, so he may believe rates will rise even higher than most other investors.

Read the full story at Bloomberg.