London : Kraft Foods bonds are rallying as debt investors reject Warren Buffett's assertion that the company's £11.9 billion (Dh71.4 billion) takeover of Cadbury is a mistake.
Kraft's 6.875 per cent notes due in 2039 climbed to a three-month high of 108.7 cents on the dollar on Wednesday, according to Trace data.
The food and beverage company's bonds have returned 2.02 per cent including reinvested interest this month, compared with 1.72 per cent for an index of similar debt and 1.71 per cent for the global corporate bond market, according to Bank of America Merrill Lynch index data. While Buffett said Kraft is overpaying for Cadbury by using undervalued stock to fund part of the deal, bond investors are betting the acquisition won't jeopardise its investment-grade credit rating.
Shares of Kraft have risen two per cent since early September, just before the offer was announced.
"It's not as bad on the bondholders as it is on the equity guys," said Mirko Mikelic, a money manager at Fifth Third Asset Management in Grand Rapids.
"People in the bond market don't think they're going to want to jeopardise their BBB rating."
