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Shy Away From Junk Bonds, Buffett Says

Yields have tumbled as investors pour money into the securities amid bullishness on economy.

May 06, 2003|From Bloomberg News

Warren Buffett is warning investors to be wary of corporate junk bonds as yields have fallen sharply.

At the annual meeting over the weekend of the billionaire's Berkshire Hathaway holding company, Buffett said the best time to buy high-risk corporate debt has passed.

After buying $7 billion of junk-rated securities in 2002, Buffett said he has "not increased to any degree" his holdings this year. He did not say whether he has sold any bonds.

The yield on an index of 100 junk issues tracked by KDP Investment Advisors has tumbled to 8.93%, a four-year low, from 10.72% at the start of this year.

Investors have poured into junk securities, driving yields lower, as optimism has increased about a rebound in the economy. A stronger economy could help the financial outlook for many debt-laden firms, lowering the risk that they might default on their debts.

Buffett, however, said "the world hasn't changed so much, but prices have" in the junk bond market.

Still, the annualized global junk bond default rate fell to 6.8% of outstanding securities in April, the 13th monthly decline since the rate peaked in January 2002, according to Moody's Investors Service.

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