Stocks & Bonds

Can Apple Time Its Bonds Perfectly Again?


Last spring, not a whole lot was going right for Apple (AAPL). Its shares had fallen as much as 44 percent from a high the previous summer, its profit declined for the first time in a decade, and investors frustrated with the pace of innovation at the company were clamoring for Apple to return to them some of the profits that the company was parking overseas. Chief Executive Officer Tim Cook acceded by announcing a $100 billion plan to return cash to shareholders.

To pay for it—and to leave those overseas profits where they were, untaxed—Apple tapped the debt market for the first time in 17 years. It did so on April 30, 2013, and its timing turned out to be essentially perfect.

The $17 billion Apple borrowed, at that time the , came as the yield on 10-year U.S. government debt was falling to 1.67 percent, near historic lows. The rate shot up immediately after, with bond legend Bill Gross declaring that a 30-year bull market for bonds had probably ended on April 29. Had Apple waited just a month, it would have paid an additional $724 million to borrow the same amount, Bloomberg News calculated in June; the yield on the debt kept rising until September. Since the financing, Apple has added more than $100 billion to its market cap.

Apple is poised to tap the debt markets again with a “similar”-sized offering as it continues to buy back shares, the company said last week. It is expected to price the bonds today, Bloomberg News reports, in a seven-part issuance, with maturities ranging from three years to 30 years.

Apple may be trying to duplicate that magic touch, locking in rates ahead of a two-day meeting of Federal Reserve officials that starts today. Last month, the Fed released data that sent bond yields up—making borrowers pay more—before new Chairman Janet Yellen spoke up to clarify that the central bank wants to keep rates low. Economists surveyed by Bloomberg expect the Fed to announce a further reduction in its monthly bond purchases after the meeting concludes. Also on the horizon: The federal jobs report will be published on Friday, giving fresh information on the state of the economic recovery.

Summers_190
Nick Summers covers Wall Street and finance for Bloomberg Businessweek. Twitter: @nicksummers.

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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $109.41 USD
    • 2.67
    • 2.44%
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