Why Apple is selling Swiss franc bonds
Some are asking why Apple is selling Swiss franc bonds, but the more apt question may be: Why not?
With a massive flight to safety pushing bond yields to record lows in Europe, investors say it's the perfect time for Apple to flaunt its corporate debt and its AA1 debt rating in front of investors.
Investec Wealth Management team in London said Apple is a good name, its well-known, and well rated, making it a "recipe for success."
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The tech giant, which last month reported blockbuster quarterly results, completed its two-part Swiss franc denominated debt sale on Tuesday, raising more than $1.35 billion.
One bond, which is due to mature in 2024, will pay investors 0.28 percent; another that matures in 2030 will pay a yield of 0.74 percent.
Those yields compare with the U.S. 10-year treasury bond, which is currently paying around 1.98 percent. But in Europe, where the German bund is yielding less than 0.50 percent and many sovereign yields have gone negative, experts say fixed income investors will be receptive to Apple's bond deal.
"In Europe, institutional investors are desperate to find a place to put money, and there is limited liquidity in the [European] bond market. That is, people are unwilling to sell bonds," noted Darren Ruane, head of Fixed Interest at Investec Wealth & Investment Limited.
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Despite extremely low yields, investors expect demand for bonds to only increase in the short term. Given uncertainty around Greece and the fate of the euro zone, bond traders say there will continue to be a strong appetite for high-quality debt.
One benefit of raising money in Switzerland right now is cheap borrowing costs. Switzerland's government 10-year bond is yielding below 0 percent, something Apple is taking advantage of with its two-part bond deal.
And if Apple is looking to strengthen its investor base, the bond deal may be one way to do it, said Jody Lurie, Corporate Credit Analyst and Vice President at Janney Capital Markets.
"Ultimately, the company is just accessing the low cost of capital and opening up their bonds to potentially new investors in new markets," Lurie said.