“As U.S. tax cuts prompt Apple Inc. and other tech companies to bring home their overseas cash hoards, it’s leaving a void in the market for short-term corporate bonds, where those firms had invested much of the money,” Molly Smith reports for Bloomberg. “That’s now making it more expensive for other companies to borrow.”

“Once the biggest buyers of short-dated corporate debt, Apple along with 20 other cash-rich companies including Microsoft Corp. and Oracle Corp. have turned into sellers,” Smith reports. “While they once bought $25 billion of debt per quarter, they’re now selling in $50 billion clips, leaving a $300 billion-a-year hole in the market, according to data tracked by Bank of America Corp. strategists.”

“Yields on corporate bonds with maturities between one and three years have jumped 0.83 percentage point this year to 3.19 percent, close to the highest in almost eight years, Bloomberg Barclays index data show,” Smith reports. “For a company that relies on such debt to fund its operations, it’s the equivalent of $4.15 million in extra interest costs each year for every $500 million of debt issued.”

“The cash-rich tech giants parked an increasing amount of their wealth into corporate debt in recent years as yields on safer investments like Treasuries shriveled — a byproduct of central banks’ unprecedented efforts to keep rates low after the global financial crisis. Apple alone held more than $150 billion in corporates, exceeding some of the world’s biggest debt funds,” Smith reports. “That started changing earlier this year after a Republican-led tax overhaul in the U.S. offered companies a break on the taxes they’d need to pay to repatriate their overseas profits. Within the first three months, companies had already brought back a record $306 billion of dividends received from abroad, according to the Bureau of Economic Analysis. The total could reach $700 billion by year-end, according to Strategas Securities.”

Read more in the full article here.

MacDailyNews Take: The era of big corporate debt is over.

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