Buffett talks about US debt

Although Buffett could not predict the direction of interest rates, he warned that fixed-income investors "face a bleak future". "bonds are not a good place to go these days," Buffett wrote in his annual letter to Berkshire Hathaway shareholders. "

His warning comes as long-term Treasury yields rise sharply, with 10-year Treasury yields recently hitting their highest level in a year. It is worth noting, however, that bond yields have been on a downward trend over the past 40 years.

He wrote: "can you believe that the yield on the recent 10-year Treasury note-0.93% at the end of the year-is 94% lower than the 15.8% yield in September 1981?" In some important economies, such as Germany and Japan, investors receive negative returns on trillions of dollars of sovereign debt. Fixed income investors around the world-whether pension funds, insurance companies or retirees-face a bleak future. "

Insurance is the largest of Berkshire Hathaway's four businesses. Although Berkshire is different from other insurers, Berkshire has adopted a more equity approach when investing in its outstanding insurance shares.

Buffett saidBecause of its financial strength and the "huge cash flow" generated by its non-insurance business, Berkshire's insurance team has allocated more capital than any of its competitors.

Buffett wrote that this combination makes Berkshire's insurance business "safely follow an equity-based investment strategy", which is "not feasible for the vast majority of insurance companies." For regulatory and credit rating reasons, many insurers have to pay attention to bonds.

He points out that some insurers and bond investors "may try to motivate current poor returns by transferring purchased assets to bonds backed by unreliable borrowers." In other words, they may allocate more of their portfolios to financial instruments, such as leveraged loans and high-yield bonds, or junk bonds.

"however, high-risk loans are not the solution to the problem of insufficient interest rates," he added. "Thirty years ago, the once-powerful savings and loan industry destroyed itself, in part because it ignored this maxim."

Buffett always told others that he compared the fluctuation of bank deposits to "the daily cash inflows and outflows of insurance companies, and the total amount they hold changes very little."

"Berkshire's huge holdings are likely to remain at current levels for many years to come," he wrote. "of course, that could change. But as time goes by, we will keep our chances of winning. "