‘We won’t spend it unless we think they’re doing something that has very little risk and can make us a lot of money,’ Warren Buffett stated.
As Warren Buffett’s Berkshire Hathaway strategically sells shares of companies such as Apple for cash, it is parking hundreds of billions in U.S. Treasury bills (T-bills), and now owns more of them than the Federal Reserve.
In the second quarter, Berkshire purchased an additional $81 billion in T-bills, short-term U.S. government debt securities that range from four weeks to 52 weeks, bringing its total holdings to $235 billion, according to the firm’s earnings
release on Aug. 3.
As a share of the roughly $5.7 trillion outstanding short-term debt
securities, the Omaha-based investing titan owns 4 percent of all T-bills issued to the public.
The company started accumulating T-bills in the first quarter of 2022 when the Federal Reserve started raising interest rates.
By comparison, the Fed’s T-bill pile is $195.29 billion as of July 31, based on the institution’s
data. To put this in perspective, however, the Fed still holds approximately $4.5 trillion in U.S. Treasury notes and bonds, with maturities from one to 10 years or longer.
The Fed’s holdings of bonds and mortgage-backed securities ballooned over the past 15 years, starting with the financial crisis of 2008–09 and escalating during the COVID-19 pandemic, from around $800 billion in 2007 to a peak of almost $9 trillion 2022, according to data compiled by Statista. It has recently reduced its holdings to about $7.3 trillion, but remains the largest single buyer of U.S. Treasury securities in the world, by far, according to the Peter G. Peterson Foundation. While T-bills are typically unappealing to investors compared to higher potential yields available in the stock market, the Fed’s recent rate hikes have made them more attractive. In the aftermath of lifting the benchmark policy rate to a range of 5.25–5.5 percent, the return rates on these investments are the highest they have been since February 2007.
The one-month yield is about 5.3 percent. The six-month yield is around 4.9 percent, and the one-year yield is 4.43 percent.
For Buffett’s firm, cash is king. In the three-month period, Berkshire’s war chest increased to an all-time high of $277 billion.
At the conglomerate’s annual meeting in May, Buffett said that he wants to deploy the capital, but high prices have made him reluctant.
“I think it’s a fair assumption that they will probably be about $200 billion at the end of this quarter,” Buffett said. “We’d love to spend it, but we won’t spend it unless we think they’re doing something that has very little risk and can make us a lot of money.”
“It isn’t like I’ve got a hunger strike or something like that going on. It’s just that things aren’t attractive,” he said.
Buffett surprised the global financial markets when it was revealed he dumped about half of his $160 billion stake in Apple stock in the previous quarter.
Market watchers have debated as to whether he is accumulating cash to pick up stocks on discounts in a recession or managing risk in a turbulent investing climate.
A Flood of T-Bills
Over the last 13 months, the federal government has issued more than $2 trillion worth of T-bills to manage the ballooning budget deficit and higher interest payments.T-bills generally offer lower average financing costs than other debt securities. In addition, the Treasury admitted in a recent report that “T-bill demand has considerably increased in recent years.”
With the Treasury Department planning to
borrow approximately $1.3 trillion over the next six months, market analysts believe that short-term debt securities will represent 40 percent of net Treasury issuance.
But while the Treasury Borrowing Advisory Committee (TBAC)—a panel of outside market experts from large financial institutions—
highlighted the positives behind issuing bonds with shorter maturities, a chorus of experts has accused the U.S. government of participating in “activist Treasury issuance” (ATI) and engaging in “stealth QE,” or quantitative easing.
“By manipulating the amount of interest rate risk owned by investors, ATI works through the same channels as the Fed’s quantitative easing program,” wrote Hudson Bay Capital’s Nouriel Roubini and Stephen Miran in a July
note.
“We calculate that ATI has reduced 10-year yields over the last year by roughly a quarter of a percent, providing similar stimulus as a one-point cut in the federal funds rate, the central bank’s primary policy tool.”
