Wednesday, May 1, 2013

$17 Billion Apple Bonds

Aa1/AA+ rated Apple came to market yesterday with $17 billion in debt issuance divided into a few different maturities and structures. Apple's floating rate paper came at +05 to LIBOR for the three year paper, +25 to LIBOR for the five year paper. 10 year fixed rate bonds came at 2.415%, or +75. Interestingly enough, by the end of the day, the bonds had become even more expensive.

Most bond portfolios are full of finance paper such as JPMorgan, Morgan Stanley, and Bank of Montreal, which is part of the reason Apple's sale was so successful. A new name means additional diversification in a portfolio, but the short paper seems quite expensive. 10 year Apple at +75 doesn't seem bad though, although the low coupon made it less attractive (for a discussion on low coupon versus high coupon volatility, see this piece).

Today the paper traded up in price relative to the rest of the market and was the heaviest traded issue according to MarketAxess. We still recommend higher coupon bonds for portfolios that demand less volatility, but we are keeping a close eye on how Apple trades in the secondary.