Warren Buffet Predicts Interest Rates Will Increase This Year

Does Warren Buffett, quite possibly the world’s top financial guru, predict that mortgage rates will rise in 2011? His most recent bond trades give good reason to believe that he does. Berkshire Hathaway borrowed 1.5 billion dollars by issuing fixed-rate bonds to pay off adjustable-rate debt. By locking into fixed-rate bonds at current mortgage rates and using that income to pay off adjustable-rate debt that could increase in 2011, heBuffett is voicing his opinion that interest rates, including mortgage rates, are going to increase. Look at current mortgage rates. Many investors constantly inspect every movement “the Oracle of Omaha” makes, and his decisions of late enforce the view that rates will rise in 2011. One could say he is locking in his mortgage, although he’s using corporate debt as opposed to a home loan. Secure your home loan. According to Bloomberg, the fixed-rate bonds Buffett issued includes $750 million of 10-year notes paying 4.25 percent and $375 million of three-year notes paying 1.5 percent. Buffett’s company also issued $375 million of adjustable-rate bonds priced at 0.33 higher than the London inter-bank offered rate, which is a standard financial index. Buffett purchased Burlington Northern Santa Fe, a railroad company, for the hefty price of $26 billion in November 2009, wagering that a stabilizing economy will boost the railroad company’s value. Buffett called the acquisition an “all-in wager” on the economy at the time, Bloomberg reported. That insight may have been ahead of the curve. Recent data points to a growing economic picture in 2011. United States manufacturing grew quicker last month, December, than it did in the previous seven months. The index for manufacturing activity, as reported by the Institute for Supply Management, went up to 57 in December, up from 56.6 in November. Any number more than 50 is indicative of growth. Unemployment claims last month sunk to their lowest numbers in almost three years and were continuing to decrease for some time before. As positive feelings about the economy increase, investors are pushing cash into a promising stock market and getting rid of safe Treasury bonds. This causes Treasury prices fall and so their yields increase, which prompts mortgage interest rates to increase.