Apple is at it again. After floating a bond offering in 2013 at a low point in fixed-income rates, the company is now issuing 8-year debt in euros at an incredibly low rate of 1.082 percent. Things are so bad in Europe, and interest rates are so low, that investors will likely will rush to buy these instruments. Simply incredible.
Apple has a reputation for creative money-management strategies and there is a reason why they are floating instruments in euro denominations. They know investors in Europe are hungry for any kind of yield in an environment where some banks in Germany actually charge investors to hold their money.
The company reckons that it is a better decision to raise funds at a 1-percent interest rate rather than bring money back to the United States and face significantly higher costs through taxation. The choice to pursue this offering certainly does highlight a glaring flaw in our tax regulations. Companies with plenty of cash park assets outside of the United States to avoid taxes; how does THAT help U.S. GDP? But for Apple shareholders, it's a shrewd decision and one that many companies are pursuing in this low interest-rate environment.
For investors this offering is yet another indication that deflationary pressures continue to keep bond prices at historic highs pushing yields to levels that many thought would have disappeared by now. Quantitative easing (1,2 AND 3), Bank of Japan policies, the specter of further monetary action in Europe, and a unspoken global currency war have pushed interest rates lower. At a result, the crush of low yields is killing senior investors that had hoped to retire on fixed income assets.
With central banks of the world continuing to print money at an unprecedented pace and with China GDP slowing (which removes a potent stimulant for global economic growth), equity markets appear for many to be one of the few ways to pull any significant yield from investments. Real estate continues to be a viable alternative through direct ownership and REITS.
Investors are left with the proposition that, in order to have higher income streams, they simply will have to make investments in assets with capital fluctuation. Dividend assets are the new bonds in this environment and the fluctuation in markets is destined to cause cautious investors consternation. But there is no other choice; either accept ridiculously low yields or chase higher returns in more volatile assets.
One caveat for any investor that invests in an Apple bond at 1 percent: You'd better love this investment for the long term because, unless we have a massive depression, you are likely buying into an artificially low rate for an extended period of time. When interest rates rise, bond prices fall and while the current environment suggests inflation is in check, that can change in a moments notice.
Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.
Disclosure: Michael Yoshikami doesn't own Apple stock or bonds. Destination Wealth Management buys Apple stock for clients.