Debt Traders Could’ve Bought Millions of Apple Watches With Loss – Bloomberg
July 22, 2015 \
5 Comments
“It’s Bond Math 101,” especially for Apple’s record-breaking $17 billion of bonds sold in 2013, right before benchmark yields rose, said Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia. “When rates rise, there’s only one way to go, at least prior to it going to maturity, and that’s down.”
Comments
Kudos to Apple for taking advantage of “free money”. The rich get richer. The fed is dropping dimes (Old Brooklyn for assisting) while Apple slams home the alleyoops. GreySpark recently stated that 84% of the total corporate bondholding are institutional investors. This infers that many bondholders invest in corporate bonds via funds (as opposed to owning individual bonds). A bond fund owner can’t hold their bonds until maturity (as with owning individual bonds outright). A fund owner is beholden to the fund’s NAV which can get whipsawed when interest rates move. Therefore, many corporate bond investors are exposed to additional… Read more »
What about a thought for investors that bought the 3.45% 30 year issue in February of this year? It is now trading around 85 according to TRACE. That’s even more watches! Bondholders have not actually ‘lost’ any money though, it’s all mark to market and the article omits to mention that angle. Unless Apple defaults investors will be correct in buying a bond because ‘it’s Apple’. Hollywood makes a good point re people buying bond funds not bonds. I think this is very true. I would suggest that buying funds and ETFs encourages people to think of fixed income in… Read more »
As indicated, no retail investor has lost any money on any of the bonds Apple has issued unless they have sold them and even in that case it may be that they lost less than they would have buying bonds of similar duration of other issuers depending on relative spread performance. My guess is most buy and hold because they are comfortable with the credit and the yield for the maturity of the bond. As already pointed out, Bond Funds are a different story. I own no bond funds. I own bonds (although not many!). Even with the increased diversification… Read more »
So, take a look at this and let me know if this chart indicates a good time to be buying bonds.
The market structure of the last 35 years has been formed around a bull market in bonds and raised a generation of traders who traded from net long positions. Yes, I know I’m over simplifying this, So, take a look at this and let me know if this chart indicates a good time to be buying bonds:
There are some very interesting points in the comments on the retail angle of individual bonds vs. funds and ETFs. Who knows individuals that own FI ETF’s? Raise your hand. An investor considers the process of buying, owning, and potentially selling an individual bond. Things to think about. Individual credit risk, examining what pre and post trade transparency (some executions with markups and markdowns) exists, the potential process around selling it, statement marks that can be nowhere near the market price. An investor considers the process of buying, owning, and potentially selling a fund or even an ETF. Things to… Read more »