Apple Inc. (NASDAQ:AAPL) offered an incredible $18 billion in corporate bonds this week in order to fund its dividend and share buyback plans, but the company’s offering did little to enhance the overall picture of the US bond market. According to Bloomberg, sales of bonds fell by 34% this week after the Federal Reserve’s outlook for the economy, and economic data, confused investors, and led to nervousness on the markets.
U.S. bond sales fell to $31.2 billion in the last week, well below the $47.3 billion that Bloomberg recorded last week. The two biggest bond sellers were Apple Inc. (NASDAQ:AAPL), which sold $12 billion of some of the most highly sought after bonds out there, and Citigroup Inc. (NYSE:C) which contributed $1 billion to total corporate bond sales this week.
Corporate bonds collapse on economic worries
Corporate bond sales tend to suffer greatly as interest rates become uncertain. That is exactly what happened earlier on this week when several pieces of data were due to arrive and the future of the bond market, and the correct pricing structure, was less than predictable. The Federal Reserve’s open market meeting saw the central bank trim its stimulus once again earlier this week, while economic growth numbers made the country’s recovery look anemic, if real.
Companies stayed away from big issues this week in order to ensure they did not meet with uncertainty when they chose to sell their debt. Pricing bonds is a difficult business, and dealing with a Federal Reserve that could move in several directions at once makes the job much harder.
Apple bonds sale collapse
The only reason that bond sales didn’t completely collapse this week was the emergence of Apple Inc. (NASDAQ:AAPL) bonds onto the market so quickly after the company announced it planned to take on more debt. The firm’s $12 billion offering made up more than a third of the total debt offered by US corporations last week.
Apple Inc. (NASDAQ:AAPL) is taking on debt in order to pay for a capital return plan while refusing to bring money back to the United States. By keeping cash abroad Apple avoids paying a hearty repatriation tax. By paying shareholders to hold onto the stock, and increasing the power of each piece, Apple is able to keep its share price higher than otherwise.
The company’s debt, backed by an actual cash pile, is among the most secure one could possibly purchase, and it is priced accordingly. The ten-year notes offered by the company this week sold with a return of 3.45%, just 77 basis points above similar notes from the U.S. government.