Buffett: Bonds should come with a health warning

Billionaire investor Warren Buffett has warned US treasuries, gilts and other bonds are among the 'most dangerous of assets' at current levels.

In an adaptation of his annual letter to shareholders that appeared on Fortune magazine's website, the 81-year-old told investors buying bonds they were putting their purchasing power at risk.

According to a Bloomberg report, he said: "They are among the most dangerous of assets.

"Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal."

Buffett said bonds are so risky given the current level of interest rates in the West that they should come with a health warning.

"Right now bonds should come with a warning label," he said.

"High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely.

"Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume."

His comments come after the Fed recently committed to keeping interest rates on hold at record lows until late 2014.

Leading UK bond fund managers have also recently warned of the risk of holding 'safe haven' bonds including gilts and treasuries.

M&G's Richard Woolnough, as well as F&C Thames River's Peter Geikie-Cobb, have both moved to short gilts following a fall in yields which left them near record lows.

However, sentiment remains mixed, with the latest round of asset purchases announced by the Bank of England today opening the flood gates for investors to pile further into the asset class, safe in the knowledge the Bank is continuing to act as a buyer of last resort.