No. of Recommendations: 18
Berkshire Hathaway Energy bonds due 2048 to 2053 are trading for a 6% yield. It seems like a good opportunity if things revert back to the low interest days of 2008-2020. I'm not sure I'm ready for a 25 year commitment though. Any thoughts?
Well, if things revert back to low interest days then you wouldn't have to make that 25 year commitment, because as interest rates drop, the price of those bonds will go up commensurately. So if you buy at 6%, and rates drop to 4%, you can collect the 6% coupon for a few years, and then sell the bond at a profit and collect a capital gain that reflects the drop from 6% to 4%. In fact, it would be just the opposite, if rates do not drop over those 25 years, you probably will commit to the 25 year holding period, and collect the 6% coupon each year until maturity (or choose to sell at/near par, or lower if rates have risen).
My opinion? We probably won't see extremely low interest rates like the previous decade anytime soon. We may see slightly higher or slightly lower rates, but I strongly suspect that we won't see near-zero rates anytime soon. That's because the interest rate is essentially the "price" of money, and the price of EVERYTHING depends on supply and demand, and the supply of debt isn't likely to decrease for quite some time.
