Investors are nursing losses of up to 9 per cent on Apple's record-breaking $17 billion bond offering, less than six weeks after the securities landed in their portfolios.
The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.
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Apple sold $3 billion of bonds maturing in 2043, locking in a low interest rate of 3.9 per cent for the next 30 years, but the market price of these bonds had fallen to 90.36 per cent of face value in late trading on Monday, according to Trace data.
Investors in the offering paid 99.418 per cent of face value for the new bonds, but institutional and retail demand was so high that they traded as high as 101.97 in the secondary market.
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The debt sale was one of the most frenzied on Wall Street for many years and there were three times as many orders as there were bonds available. Issues by companies with high credit ratings have been among the hottest fixed-income investments because the interest they provide outstrips the meagre yield available on government securities.
However, recent comments by Federal Reserve officials have suggested that the US central bank could soon start to taper its purchases of government debt, thanks to an improving economy, and traders have reacted by sending interest rates on Treasuries sharply higher.
That has reduced the relative attractions of corporate bonds and sent their values sharply lower. Bonds with longer maturities have suffered the steepest falls, though even Apple's five-year and 10-year debt has declined in price. Its $5.5bn of 10-year bonds now have a market value below $5.2bn.
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Ashish Shah, head of global credit at AllianceBernstein, said the price moves in Apple were potentially temporary. "The most recent new issues tend to be the most dislocated in a sell-off as they are still quite liquid," he said.
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"Historically we have not had this level of retail investor participation in the market. When retail start losing money, they sell but institutional money is waiting to buy once the market has backed up to higher yields."
Apple said it would use the proceeds of its bond offering, its first since 1996, to help pay for the return of $100bn to shareholders over the next three years. Although the iPhone maker has $145bn of cash on its balance sheet, only $45bn is held in the US and repatriating foreign reserves would be costly due to tax implications.
— Additional reporting by Michael Stothard in London and Vivianne Rodrigues in New York