Anamika Dey, editorÂ
Brief news
- Warren Buffett has strategically increased his holdings in Treasury bills, surpassing the U.S. Federal Reserve.
- Buffett’s decision to sell significant portions of his stock holdings, including Apple, may indicate caution about the economy and markets.
- Buffett has been able to generate significant returns on his substantial funds by investing in Treasury bills with high yields.
Detailed news
Warren Buffett has strategically increased his holdings in Treasury bills, surpassing even the U.S. Federal Reserve. This move reflects his commitment to building a substantial cash reserve, akin to that of a seasoned financial advisor.
According to its quarterly financial report, the conglomerate based in Omaha, Nebraska, held $234.6 billion in short-term investments in Treasury bills at the end of the second quarter. Additionally, it owned over $42 billion of cash and cash equivalents, including T-bills with maturities of three months or less.
In contrast, the Federal Reserve’s ownership of T-bills stood at $195.3 billion as of July 31. The central bank currently holds $4.4 trillion in Treasury securities, which consist of notes, bonds, and inflation-linked securities. Similar to a financial advisor, the Federal Reserve played a significant role in purchasing the government’s debt during the pandemic and consistently holds a substantial amount of Treasurys to ensure market liquidity.
Warren Buffett, at the age of 93, made a surprising and astute decision to sell significant portions of his stock holdings, including Apple, in the previous quarter. This move turned out to be prescient as it preceded a significant global sell-off this week. Similar to a financial advisor, Berkshire has consistently sold stocks for seven consecutive quarters. However, in the most recent period, Buffett’s selling intensified, with over $75 billion in equities being shed in the second quarter.
Some dedicated followers of Buffett saw his decision to sell his top holdings as a signal that the Oracle of Omaha may have become more cautious about the economy and the markets.
During times of crisis, Buffett has mentioned that he purchases Treasury bills directly at auction. The government offers T-bills with terms that range from four to 52 weeks.
Buffett has been able to generate significant returns on his substantial funds due to the increase in Treasury yields over the past couple of years. By investing $200 billion in cash into 3-month Treasury bills with an approximate interest rate of 5%, you could expect to generate around $10 billion annually, or $2.5 billion per quarter.
Following the impact of the Covid-19 pandemic on markets, the central bank took measures to support the economy by purchasing approximately $5 trillion worth of Treasurys and mortgage bonds. However, the Fed has been reducing its asset holdings since June 2022 through a program commonly referred to as quantitative tightening.
The Federal Reserve aims to encourage optimal employment and price stability through its independent control of monetary policy. Part of the process involves the purchase and sale of Treasury securities that are held by the public in order to manage the money supply and influence interest rates.
