Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) cutting its exposure to municipal bonds and high-yield corporate debt has some bond ETF investors taking another look at the sectors’ credit risks.
Berkshire recently terminated half its bullish $16 bet on municipal bonds and has also cut its exposure to speculative-grade corporate debt, according to a regulatory filing, Reuters reports.
The company recently terminated credit-default swaps insuring $8.25 billion of municipal debt, according to the Wall Street Journal.
San Bernardino recently became the third municipality in California to file for bankruptcy and analyst Meredith Whitney is back in the news with a prediction that local governments are nearing a financial “inflection point” that could result in not honoring their debt obligations. [Are Muni Bond ETFs Facing an ‘Inflection Point?’]
“The move comes as many investors including Berkshire Chairman, billionaire investor Warren Buffett, foresee an uptick in U.S. municipal bankruptcies,” Reuters reported Tuesday. “Buffett said last month that the bankruptcies of three California cities in as many weeks was making traditionally objectionable Chapter 9 municipal bankruptcy filings more palatable to local governments in financial crises.” [Muni Bond ETFs For Liquidity and Yield]