Some investors are steering away from municipal bonds, saying the recession and credit crisis will spur a rash of debt defaults by state and local governments.
Legendary investor Warren Buffett isn’t one of them. His Berkshire Hathaway almost doubled its municipal-bond holdings in the nine months ended March 31, Bloomberg reports.
Buffett made clear his hankering for munis in Berkshire’s letter to shareholders in February.
“The investment world has gone from underpricing risk to overpricing it,” Buffett writes.
“A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds, even while risk-free governments offered near-zero returns on short-term bonds.”
Berkshire increased its muni portfolio to $4.05 billion as of March 31 from $2.05 billion on June 30, 2008, the company stated in regulatory filings cited by Bloomberg.
Berkshire bought $1.09 billion of munis in last year’s third quarter and $985 million in this year’s first quarter.
“Savvy investors picked up some good bargains,” Janet Tavakoli, a Buffett watcher who has her own structured finance firm, tells Bloomberg.
“There have been some excellent bargains for people like Warren Buffett, who understands that the principles of value investing don’t change, no matter the circumstances.”
Others are bullish on muni bonds too. “We think the municipal market is still attractive for long-term investors,” Harold Evensky, president of Evensky & Katz Wealth management, tells Moneynews.
“There may be some defaults, but the fear mongering is way overstated.”
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