In its second transaction in Japan this year, Berkshire Hathaway Inc., led by billionaire investor Warren Buffett, sold yen bonds at a discount, fueling growing rumors that Buffett may be investing more in the country’s stock market.
In comparison to its previous sale, the firm was able to lower spreads in an offering of five tenors of notes, ranging in maturity from three to 35 years, for ¥122 billion ($810 million). In April, it priced three-year bonds at a 75 basis point premium over swaps, but this was during a period of increased market volatility following the appointment of Kazuo Ueda as governor of the Bank of Japan and global issues pertaining to the banking sector.
Spreads tightened as a result of the Berkshire bond’s coupons increasing in comparison to the April sales, but not as much as the equivalent swap rates that were used to determine premiums. The BOJ’s ultra-easy monetary policy is expected to change by April, according to most economists, though Ueda has indicated that the change will only be gradual and Japan’s sovereign yields have fallen from their recent highs.
Asset Management One fund manager Haruyasu Kato stated, “We felt that Berkshire’s three-year deal with nearly 1% coupon was relatively attractive, despite the rising expectations for higher interest rates ahead.” “It is amazing that the company, in a challenging climate where many deals have been cancelled or delayed, was able to successfully close a deal worth approximately ¥120 billion.”
Even after the BOJ essentially relaxed the 1% ceiling on 10-year sovereign bond yields last month, foreign issuers have continued to issue yen bonds with significant volume. Since Japan’s interest rates are still lower than those of most other economies, foreign corporate and sovereign borrowers—including those from emerging markets like Poland—are benefiting from lower funding costs.