Berkshire Hathaway, led by Warren Buffett (Trade, Portfolio), is preparing to issue multiple yen-denominated bonds, increasing market speculation about expanding investment in Japan. The company has started trading in seven bonds with maturities ranging from 3 years to 30 years. All of the bonds, except the three-year notes, carry higher premiums than bonds issued in April. Specifically, the 10-year spread on midswaps is now 82 basis points, up from 71 basis points in April, and the 20-year spread is now 91 basis points, up from 78 basis points previously.
This fundraising move has been attracting attention among stock investors after Buffett’s previous purchase of Japanese trading company stocks drove the Nikkei Stock Average to a historic high. Buffett said in his annual letter to shareholders in February that Berkshire Hathaway’s large investments in Japanese companies were primarily financed by issuing yen bonds.
Analysts have suggested that the Japanese market could become more active if Berkshire expands its investment focus to include banks, insurance and shipping companies. Nomura strategist Tomochika Kitaoka believes financial companies such as Mitsubishi UFJ Financial Group, Sumitomo Mitsui Trust Holdings and Sompo Holdings are a good fit for Berkshire’s investment style. But some observers have speculated that Buffett will continue to focus on trading companies, especially after the recent sale of Bank of America (BAC, Financials) stock.
Bond trading also serves as an important test of demand for yen-denominated bonds. The widening of long-term bond premiums reflects investors’ caution regarding Japan’s interest rate environment. The Bank of Japan is expected to maintain current interest rates at its next policy meeting after comments from Japan’s new prime minister that he would rule out raising interest rates for the time being, with some economists adjusting their expectations for a rate hike at the end of the year.
