"From Warren Buffett's Playbook: The Power of U.S. Treasuries in Changing Times"

A few days ago, Berkshire Hathaway, led by Warren Buffett, confirmed a $10 billion purchase of U.S. Treasuries, underscoring their consistent investment plans despite Fitch's downgrade of the U.S. long-term foreign currency issuer default rating from AAA to AA+. Here are several things you might want to know:

A U.S. Treasury bond is essentially a loan provided to the U.S. government. When you buy a bond, you're lending money to the government, and they promise to repay you with extra money (interest) after a certain period. Bonds are issued with various maturity lengths, ranging from 2 to 30 years. Short-term bonds like 3-month or 6-month T-bills are similar but have shorter loan durations. For instance, if you purchase a 10-year U.S. Treasury bond, the government will reimburse your money after 10 years, along with interest.

Imagine a seesaw with bond prices on one side and yields (interest rates) on the other. When the economy is thriving and interest rates increase, it's akin to someone sitting on the yield side, causing it to rise. Consequently, new bonds with higher interest rates emerge, making older bonds with lower rates less appealing. This could lead to a decline in the prices of those older bonds. Conversely, during economic downturns and declining interest rates, the seesaw tips the other way, rendering older bonds with higher rates more valuable.

During high-interest periods, individuals can earn from U.S. Treasury bonds in two ways. Firstly, through "interest income," where regular interest payments are received while holding the bond. Secondly, via "capital gain," by selling the bond at a higher price if its interest rate becomes attractive to new investors. This occurs because your bond's fixed interest rate might outperform new bonds issued at lower rates.

Remember, while Warren Buffett's purchase of U.S. Treasuries reflects his confidence, financial situations and goals differ for everyone. It's advisable to consider your own investment strategy and possibly consult a financial advisor before making significant decisions.