Despite the fact that Warren Buffett’s Berkshire Hathaway lost three AAA-ratings over the last year, Berkshire credit default swap spreads just hit a 17-year low which means perceived credit risk is lower than before ratings agencies downgraded Buffett’s conglomerate.
Berkshire credit-default swaps fell to the lowest in 17 months, ending at 128.1 basis points yesterday in New York, according to CMA DataVision prices. The swaps reached 127.6 on Sept. 22, 2008. That compares with 130.4 on Feb. 19 and 525 basis points on March 5, 2009. A rising stock market in the final nine months of 2009 boosted Berkshire’s results, allowing investors to look beyond the three AAA ratings the company lost in the last year.
“The market’s increasingly recognising the fundamental creditworthiness of Berkshire,” said Bill Bergman, an analyst with Morningstar Inc. “They’ve cemented their position in the marketplace.”
The markets have spoken. We can’t think of a more obvious example how ratings agencies have lost enormous credibility.