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Apple Inc. Bonds: Surging Returns and Tightened Spreads


Investors who made the wise decision to purchase Apple Inc. bonds in October are now experiencing impressive equity-like returns. Not only have the prices of these bonds climbed, but the spreads have also tightened as Treasury yields have taken a tumble.

Rally in Treasurys The hopes of one or more rate cuts by the Federal Reserve in 2024 have ignited a significant rally in Treasurys. As a result, the Bloomberg US Aggregate Bond Index, which is a widely recognized fixed-income benchmark, has surged by an impressive 4.91% in November so far (as of Wednesday’s close). If this trend continues, it will mark the largest monthly gain since May 1985, when the index experienced a monthly return of 5.23%.

Impressive Performance by Apple Bonds The high-grade and highly liquid bonds issued by Apple have seen remarkable gains in price, with some reaching up to 15%. Additionally, the spreads on these bonds have tightened by as much as 22 basis points since mid-October. The following charts from data-solutions provider BondCliQ Media Services illustrate this remarkable performance.

Comparison with Apple Stock In comparison, Apple’s stock (AAPL) has experienced a rally of approximately 10%.

At that time, Apple’s 10-year bonds were yielding around 5.2%, while the implied dividend yield of the stock stood at 0.54%.

The following chart illustrates the changes in spreads during the same time frame.

Investing in Apple Bonds

The recent performance of Apple bonds has attracted significant attention from investors. Over the past 10 days, there has been a trend of net selling, possibly driven by profit-taking as the month comes to a close and fund managers look to secure their gains.

During the Federal Reserve’s rate-hiking cycle initiated in March 2022, bonds issued by Apple and other well-known companies experienced price declines due to increasing yields. However, it is essential to note that these price changes were a result of the inverse relationship between bond prices and yields, rather than any credit-quality concerns.

Nonetheless, this market movement presented an opportunity for investors to add renowned, high-yielding names to their portfolios at lower costs.

Apple, in particular, has been active in issuing bonds, aiming to raise funds for shareholder returns. In 2013, the company made a significant six-part bond offering of $17 billion, marking its first bond issuance since 1996. At the time, Apple held a substantial amount of cash overseas that would have been subject to a 35% tax if repatriated.

Subsequently, Apple continued to issue bonds to take advantage of favorable borrowing rates available at that time.

For investors interested in Apple bonds, although there is only one stock available, there are numerous bonds circulating in the market to choose from.

Read also: Corporate bonds are on sale. How to add cheap Apple, Disney, and Microsoft bonds to your portfolio.

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