Monday, March 4

Berkshire sells yen bonds and incurs the highest cost

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Yen bonds increase in value

US company Berkshire has sold US$1.2bn worth of yen bonds. The deal was a massive setback for the investment giant. It was the most significant expense for the business in its history, with debt denominated in that currency. And Berkshire is considered one of the largest foreign issuers of bonds in Japanese currency. The main reason for the increase in costs was a change in policy by Japan’s regulator, which increased the burden on security holders.
During the bond sale, Berkshire posted spreads higher than the offer in the last transaction, which occurred in December 2022. Despite this, the value of the current sale showed an active debt momentum. Mizuho Securities acted as one of the registrars for the transaction. According to its statement, the 5-year bond yield is 1.14%, seven times Berkshire’s payout in 2019 when it first started issuing yen bonds.
This trend suggests that:
– despite the stability of the economy, Japan, like other countries, is susceptible to rising bond prices;
– the price of yen-denominated bonds is still relatively low by global standards;
– debt costs are rising, but Japanese equities are still inexpensive.
Analysts believe that this situation may not last long. Soon the Japanese central bank will follow the example of its international counterparts and raise interest rates. Currently, they are at negative levels. According to Amir Anwarzadeh of Asymmetric Advisors, the regulator must revise rates, leading to a stronger yen.

yen bonds

Berkshire’s operations in Japan

Warren Buffett’s company made its first yen bond sale in 2019. Since then, it has sold 1.2 trillion yen worth of debt. Berkshire entered the Japanese equity market in 2020 when it bought local companies for one of the most considerable sums in the sector. However, the investment giant will not stop there and plans to increase its investments in local stocks. It talks about the top five Japanese trading houses. The company now owns around 5% of their shares, but the stake could be increased to 7.4%. Buffett has also met with Japanese CEOs, but the outcome remains unknown. At the same time, the businessman expressed his desire to buy shares of other Japanese companies in the future but did not name them specifically.

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