Warren Buffett: things are looking bleak for bond investors

Bond investors should beware the panic as inflation approaches

“Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future,” warns Warren Buffett, America’s best-known investor. In the latest annual letter to shareholders in his investment vehicle Berkshire Hathaway, the 90-year-old notes that “bonds are not the place to be these days”.

Buffett’s words came hot on the heels of a tough week for global bond markets. Across the world, bond yields have risen (and thus prices fallen) as investors start to bet on inflation making a comeback as the pandemic recedes. That could finally mark an end to the multi-decade bond bull market that has driven yields to record low levels (see main story). As Buffett notes: “Can you believe that the income recently available from a ten-year US Treasury bond – the yield was 0.93% at year end – had fallen 94% from the 15.8%... available in September 1981?”

As for his own business, Berkshire’s share price has lagged the wider S&P 500 for two years in a row, at a time when Buffett has struggled to find promising prospects on which to spend the company’s near-$140bn in cash. Indeed, it seems that Buffett saw his own conglomerate as one of the best opportunities out there, buying back almost $25bn-worth of its shares in 2020. He says this will likely continue, reminding his investors that buybacks in 2020 raised their “ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet”.

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