Have you heard the news? Apple has decided to take a new direction in a move that has been exciting investors around the globe.
In short, the Cupertino based company has issued $17 billion in corporate bonds.
While this may not mean much to some people, others realize that it is a great way to invest in a company that is known for being one of the most stable and valuable in the entire world. Although it’s no longer the largest corporation on earth like it was in 2012, it still sits amongst the top 10 fortune 500 companies and has a stockpile of cash north of $145 billion. Yes, that’s billion with a B.
With all this in mind, there is likely to be one question burning deep down inside: why would a company with $145 billion (enough to rent out every square footage of office space in New York City according to the New York Times) want to issue debt?
The answer – historically low interest rates.
The bond market in general has been in a frenzy with Apple’s latest announcement only stirring the pot further. The reason for this is the same reason we have such ridiculously low savings rates at banks and that is that interest rates in general are sitting near zero percent.
Given this dynamic, Apple can issue bonds between 2 and 3 percent with 30 year terms and use these funds to buy back stock. A move that investors are responding to in a very positive way.
From the savers perspective this also poses an interesting opportunity. With bank CD rates hovering around all time lows, income-investors from all walks of life are looking for safe investments that offer a higher yields than today’s FDIC insured bank deposits and online savings accounts.
[Read: Corporate bonds vs CD rates.]
Sure, other companies offer corporate bonds but it is big news when a tech titan such as Apple gets in on the action. This is something that really gets people talking.
As tempting as it may be to get in on the action, you may not want to jump in just yet. Instead, take a step back and look at the pros and cons before doing so.
Retail investors have a great opportunity here, but it is safe to say that it is better for some than others.
First things first, Standard & Poor’s has placed a AA-plus rating on the company. What does this mean exactly? It means it’s one of the safest bets around. To put it in further perspective, it is the same rating as US treasuries. Along with this, Moody’s Investors Service rated it Aa1. This is a step below Aaa, which has been given to US treasuries.
[Read: US treasuries vs Bank CDs.]
There are six types of bonds being offered by Apple, ranging in term from three to 30 years.
According to an article by ABC News, short term Apple corporate bonds have a yield that is “slightly higher” than US treasuries.
While the yield is higher, you need to look at the overall body of work to determine if getting your hands on Apple bonds is the right type of investment.
Note: as a retail investor you will have to pay a broker commission, meaning your yield will not be as high as you think. Keep this in mind as you compare Apple bonds to bank CDs.
Now that you know more, what do you think? Are you going to add Apple corporate bonds to your portfolio?