Apple Borrows Money to Buy Back Stock. What That May Say About the Bond Market.

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Apple

is gearing up for a four-part bond sale to fund inventory buybacks.

Apple (ticker:

AAPL

) is planning to make use of the proceeds from the sale for normal company functions, together with shopping for again shares and paying dividends, the corporate mentioned in a submitting with the Securities and Trade Fee.

The bond maturities vary from seven to 40 years. Apple didn’t disclose how a lot cash it’s elevating or what rates of interest it should pay.

Goldman Sachs
,
BofA Securities, and

J.P. Morgan

are main the providing, Apple mentioned.

Bond issuance has lengthy been a key capital-raising technique for Apple. The corporate executed the same providing in July 2021, promoting $6.5 billion of notes in 4 components, and as of June 25, 2022, it had $94.7 billion in long-term debt excellent.

Shares of Apple have been up 0.3% on Monday. The credit-rating firm Moody’s upgraded Apple’s long-term score to AAA in December. That is Moody’s highest score, awarded solely to firms with the bottom stage of credit score danger. Solely

Microsoft

(

MSFT

) and

Johnson & Johnson

(

JNJ

) have the identical score amongst U.S. firms within the

S & P 500.

To some, Apple’s debt issuance might recommend that bond yields — and rates of interest — may nonetheless be too low, provided that the corporate nonetheless perceives credit score as a pretty choice. To make sure, the yield on the 10-year Treasury declined 0.33 share level to 2.64% in July, the biggest one-month yield decline since March 2020.

However for bond knowledgeable Martin Fridson that doesn’t appear to be the case.

“Based on J.P. Morgan’s 5-year TIPS breakeven mannequin, traders at present count on inflation to be at 2.8% in 5 years. That’s above the Fed’s 2% said goal, however I don’t assume most market members contemplate it alarming,” Fridson mentioned.

“So if the Fed funds continues to be considerably under the optimum stage, the hole doesn’t seem like enormous by this line of reasoning.

That mentioned, he predicts charges will hold growing, which can have motivated Apple’s issuance.

“It’s doable the CFO reasoned that it’s possible charges are heading increased; this appears like the perfect alternative we’ll must borrow to repurchase inventory for a very long time, so let’s reap the benefits of it,” he mentioned.

As well as, the corporate could also be benefiting from low yields particularly for high-quality credit score issuers, Fridson mentioned. In July, the yield for AAA-rated firms fell by 31 foundation factors, in line with ICE Indices, which is the most important one-month drop since August 2019. For an AAA-rated firm like Apple, this might be a tax-efficient option to ship a optimistic message to shareholders, he added.

Write to Sabrina Escobar at sabrina.escobar@barrons.com