Does Warren Buffett, perhaps the world’s top financial guru, think mortgage rates will rise this year? His recent bond trades indicate that he does.
Berkshire Hathaway Inc. borrowed .5 billion by issuing fixed-rate bonds to pay off floating-rate debt. By locking into fixed-rate loans at current rates and paying off floating-rate loans that could increase in the future, Buffett is evidently betting that interest rates, including mortgage rates, will increase. Check current mortgage rates.
Other investors closely watch every move “the Oracle of Omaha” makes, and his recent decisions strengthen the view that mortgage rates will increase this year. In a sense, he is locking in his mortgage, although he’s using corporate debt as opposed to a home loan. Lock in your home loan.
Bloomberg reports that the fixed-rate debt Buffett issued includes 0 million of 10-year notes paying 4.25 percent and 5 million of three-year notes at 1.5 percent. Buffett’s company also issued 5 million of floating-rate bonds priced at 0.33 over the London inter-bank offered rate, a common financial index.
Buffett purchased a railroad company, Burlington Northern Santa Fe, for billion in November 2009, betting that an improving economy will boost the railroad company’s value. At the time, he called the acquisition an “all-in wager” on the economy, according to Bloomberg.
That view may have been ahead of the curve. Recent economic news is pointing to an improving economic picture this year. U.S manufacturing grew faster in December than in the previous seven months. The index for manufacturing activity, as from the Institute for Supply Management, increased to 57 in December, up from 56.6 in November. Anything over 50 means growth. Unemployment claims last month fell to their lowest level since 2008 and have been trending downward. As investors become more optimistic, they’re pumping money into a rising stock market and dumping safe Treasury bonds. That makes Treasury prices fall and their yields rise, prompting mortgage rates to increase.
Michael Kling is the web editor and contributing web content writer for Total Mortgage Services, LLC, as well as all related sister sites. Total Mortgage Services, LLC is an industry leading mortgage broker and lender headquartered in Milford, Connecticut.
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