Apple’s $6.5bn bond fuels speculation interest rate hikes are on way

Apple 's mega bond sale is fueling speculation US interest rates are poised to increase. The iPhone maker issued $6.5 billion of debt Monday, locking in borrowing costs for as long as three decades. The sale follows a plunge in benchmark Treasury yields, with US 30-year yields falling to a record last week. They may not stay this low if forecasts for the Federal Reserve to raise rates are correct.

An Apple bond sale in 2013 coincided with the record low in company borrowing costs. "This is the right time to issue corporate bonds," said Kim Youngsung, the head of overseas investment in Seoul at South Korea's Government Employees Pension Service, citing Apple as an example. "Interest rates will go up in the middle of this year."

The Treasury 10-year yield climbed five basis points, or 0.05 percentage point, on Tuesday to 1.72 per cent as of 6:02 a.m. New York time, according to Bloomberg Bond Trader data.

The rate fell to 1.64 per cent on Jan. 30, approaching the all-time low of 1.38 per cent set in 2012. The 2.25 per cent note due in November 2024 fell 1/2, or $5 per $1,000 face amount, to 104 25/32. Thirty-year bond yields rose six basis points to 2.31 per cent after dropping to a record 2.22 percent last week.

Bond Indexes Treasuries returned 2.9 per cent in January, the biggest monthly advance since December 2008, according to Bank of America Merrill Lynch indexes as sliding oil prices and political uncertainty in Greece drove demand. The securities have fallen for the past two days amid oil's longest rising streak since August, and as Greece's new Syriza-led government as the nation was said to retreat from a demand for a debt writedown from its creditors.

"On the basis that two of the key drivers of the continued move down in Treasury yields this year were the drop in oil prices and then the growing uncertainty surrounding Greece, the Treasury market has seen a decent pop higher in yield," said John Davies, a U.S. interest-rate strategist at Standard Chartered Bank in London.

When Cupertino, California-based Apple sold bonds on April 30, 2013, the $17 billion issue was the biggest corporate-debt offering on record at the time. Two days later, the US average investment-grade corporate bond yield fell to an all-time low of 2.64 per cent, based on Bank of America Merrill Lynch data that go back to 1996.

The yield is now 2.90 per cent, which compares with the average of 5.38 percent during the period.

Bloomberg