Apple Inc’s massive bond sale is fueling speculation that US interest rates are poised to increase.
The iPhone maker issued US$6.5 billion of debt on Monday, locking in borrowing costs for as long as three decades. The sale follows a plunge in benchmark US Treasury yields, with US 30-year yields falling to a record low last week. They might not stay this low if forecasts for the US Federal Reserve to raise rates are correct. Apple’s last sale in 2013 coincided with the record low in company borrowing costs.
“This is the right time to issue corporate bonds,” said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, citing Apple as an example. “Interest rates will go up in the middle of this year.”
The company manages the equivalent of US$13.7 billion.
The Treasury 10-year yield was little changed at 1.66 percent as of 6:49am in London trade yesterday, according to Bloomberg Bond Trader data. The price of the 2.25 percent note due in November 2024 was 105-9/32. The yield fell to 1.64 percent on Friday last week, approaching the all-time low of 1.38 percent set in 2012.
Thirty-year yields were at 2.26 percent after dropping to a record 2.22 percent last week.
Cupertino, California-based Apple last sold bonds on April 30, 2013. The US$17 billion issue was the biggest corporate debt offering on record at the time.
Two days later, the US average investment-grade corporate bond yield fell to an all-time low of 2.64 percent, based on Bank of America Merrill Lynch data that go back to 1996. The yield is now 2.90 percent, which compares with the average of 5.38 percent during the period.
Futures contacts indicate that there is a 63 percent chance that the Fed will boost its benchmark to at least 0.5 percent by December, according to data compiled by Bloomberg. Policymakers have kept the target for overnight loans between banks in a range from zero to 0.25 percent since 2008.
It is not a sure thing that US government and corporate bond yields will push higher, said Will Tseng, a portfolio manager in Taipei at Mirae Asset Global Investments Co (未來資產證券), which oversees US$63.9 billion.
“Even if the Fed starts its first rate hike this year, it does not mean the overall interest rate environment will be very high,” Tseng said. “The policy rate is still lower than 1 percent. I do not think corporates should be afraid of a higher-rate environment,” including Apple, he said.
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