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Warren Buffett Watch
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Berkshire Hathaway Credit Default Swaps Rise to "Junk" Territory - Bloomberg
The price of Berkshire Hathaway credit-default swaps hit a record high today (Wednesday), going as high as 535 basis points, before retreating to 515 basis points in the late afternoon.
Bloomberg reports the swaps, which are in effect insurance against a default by Warren Buffett's holding company, are trading at levels "more typical of junk-rated companies" even though Berkshire retains its triple-A rating.
The news service says the swap prices may be rising due to worries Berkshire will lose big on derivatives contracts tied to the long-term moves of global equity indexes, high-yield corporate bonds and municipal debt.
Bloomberg quotes Buffett author Jeff Matthews as saying, "There are two extremes on Berkshire, and one is that he’s going to make a lot of money on these things, just like he’s promised." The other extreme: "He could in fact suffer huge losses and it could really trigger some problems."
As part of a lengthy section on derivatives in this year's annual letter to shareholders, Buffett wrote that his expectation, "though it is far from a sure thing, is that we will do better than break even" on the contracts.
Buffett has said Berkshire will not have to pay out any money on the contracts until well into the future, even if they lose value on paper in the meantime.
Current Berkshire stock prices:
Class A: [US;BRK.A
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Class B: [US;BRK.B
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- Berkshire Hathaway Slips to 5-1/2 Year Low, Down 50% From All-Time High (March 3)
- Berkshire Hathaway Subsidiaries Will Continue to Make Job Cuts (March 3)
- Ask Warren Buffett: Send Us Your Questions Here (March 2)
- Warren Buffett's Letter Generates "Worst" Headlines (March 1)
- Warren Buffett Tells Shareholders He Did "Some Dumb Things" In 2008 (February 28)
- Warren Buffett "Has Some Explaining to Do" In Tomorrow's Letter to Shareholders (February 27)
Data is a real-time snapshot *Data is delayed at least 15 minutes
