Apple's $2 Billion Japan Offering Set to Test Sell-Bonds Signal

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Apple Inc.’s reputation for calling the low in interest rates is being tested after it sold its first yen bonds in Japan.

Two days after the iPhone maker issued $17 billion of notes in the U.S. on April 30, 2013, the U.S. average investment-grade corporate yield fell to an all-time low of 2.64 percent, Bank of America Merrill Lynch data show. The yield is now 3.28 percent. The yield on 10-year dollar debt sold on Feb. 2 has climbed 74 basis points.

Apple borrowed 250 billion yen ($2 billion) at a time when benchmark yields are rising from a record low as the economy responds to central bank stimulus. It sold debt at the same rate as Japan’s five-year swap rate, or 0.35 percent, raising cash for operations, dividends, buybacks and investment.

“When corporations expect the rate to go up, then of course they’re going to issue bonds,” said Yusuke Ito, an investor at Mizuho Asset Management in Tokyo. “They’re always trying to time the bottom. They’re not always right.”

The securities are being underwritten by Goldman Sachs Group Inc. and Mitsubishi UFJ Financial Group Inc. and were marketed to investors globally. The bond sale is one of the biggest ever in yen by an overseas company, according to data compiled by Bloomberg.

Capital Return

Apple announced it would boost a capital return program by $70 billion by March 2017, and the company’s been borrowing in the U.S. and Europe to fund it. More than $171 billion of its cash and securities was offshore, meaning it would be subject to U.S. taxes to repatriate the funds. The company has been under pressure to return capital to shareholders, such as Carl Icahn, who has been pushing for a larger buyback. It had the equivalent of $193.5 billion in cash at the end March.

Apple sold debt in Swiss francs in February, after the benchmark yield turned negative the month before.

In the U.S., Apple continued to borrow via bond sales in 2014 and 2015. Ten-year yields averaged 2.37 percent during the period. While that’s up from the record low of 1.38 percent set in 2012, it’s still less than the average of 3.22 percent for the past decade.

Apple’s sales aren’t the first that traders use to judge the outlook for yields. Jeffrey Serkes developed a reputation for being able to time the market when he was the treasurer of International Business Machines Corp. in the 1990s.

Rising Yields

Japan’s benchmark set its all-time low of 0.195 percent in January and climbed to 0.505 percent Thursday in Tokyo. It will rise to 0.6 percent by the middle of next year, based on a Bloomberg survey of economists.

The Bank of Japan is buying as much as 12 trillion yen of government debt a month, driving two straight quarters of economic expansion following a 2014 recession. The main inflation gauge is holding at zero, versus the central bank’s 2 percent target.

The International Monetary Fund said the BOJ should stand ready to increase monetary stimulus, in a report last month.

Central bank Governor Haruhiko Kuroda will probably take the advice, said Toshifumi Sugimoto, the chief investment officer at Capital Asset Management in Tokyo.

“Japan’s interest rate will remain very low,” he said. “The market is anticipating additional quantitative easing.” Ten-year Japanese government yields will be 0.2 percent to 0.3 percent by year-end, he said.

Japan Revenue

The technology giant said in March it will build a research center in Yokohama. Josh Rosenstock, an Apple spokesman, declined to comment. The company earned more than $15 billion in revenues, or 8.4 percent of the total, in Japan in the fiscal year ended Sept. 27.

While BOJ’s bond buying continues to weigh on interest rates, volatility in the Japanese debt market has increased, said Tadashi Matsukawa, Tokyo-based head of fixed-income investment at PineBridge Investments Japan.

“It’s not like last year when rates were falling,” Matsukawa said. “It feels a little like the mood for rising rates has emerged.”

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