Apple’s bonds are acting more and more like government debt

“Investors… seem prepared to designate Apple Inc. bonds as the new Treasuries,” Cecile Gutscher reports for Bloomberg.

Apple “can’t print its own currency like the U.S. government does, but it’s certainly approaching something akin to favored-nation status in the debt markets,” Gutscher reports. “Apple’s sale of $5 billion of bonds Tuesday was even designed to mimic the U.S. government curve, with benchmarks for repeat issuance of debt due in two, five, 10 and 30 years.”

Gutscher reports, “Moreover, the narrow risk premiums on Apple’s bonds suggest duration that’s more like government than corporate peers…”

Read more in the full article here.

MacDailyNews Take: Apple’s certainly more solvent.

9 Comments

  1. Re: “MacDailyNews Take: Apple’s certainly more solvent.”

    Apple’s non-physical holdings are denominated in US Dollars and other currencies, which means they fluctuate with the value of the currencies involved.

    1. But Apple’s cash and short-term securities assets far outweigh the company’s debt, even when you factor in currency variability. If it wanted to, Apple could easily retire its debt (although it would have to pay a lot of taxes to repatriate the assets).

      In contrast, the U.S. is borrowing money each year for general operations. Even if there were the public and political will to reign in spending and increase taxes, it would take many years for the U.S. to retire its debt.

      I really don’t understand your point, DavGreg.

    1. The U.S. government works on the “full faith and credit” principle. The fact that the federal government can *theoretically* reduce spending and increase taxes to cover its debt obligations without borrowing even more money does not mean that the U.S. is technically “solvent.” The accumulated U.S. debt is substantially larger than the GDP and many times larger than the total annual federal budget. You and I have different ideas about the condition of being solvent.

      1. Money works on the “full faith and credit” principle. It’s a fiction that people believe in based on how they think others will behave. That doesn’t make it bad, that’s just what it is. The alternatives are probably inefficient or otherwise problematic.
        The government almost by definition is “solvent,” since it isn’t just another player in the economy, even in the U.S.

      2. You have a different definition of solvent than the rest of the World. As I noted, if others agreed with you, then the interest rate for the US to borrow would be sky-high. It’s not.

  2. The US dollar is a fiat currency. The government can issue as many dollars as it likes with a few clicks on a keyboard. Even Alan Greenspan made this point. The US government cannot go bankrupt. Also, counter to the nonsense you hear on Fox, you and I are not personally responsible for any government debt. When the government sells a bond that is a contractural agreement to repay dollars on a given schedule. The government will repay those dollars either through taxation or by creating more dollars. Every foreign government which buys US debt understands this perfectly.

    Obviously, there are constraints we have to live within. However, there is zero chance the federal government will become insolvent. We are not like Greece. Greece borrows euros and has to repay euros but the only way to get those euros is through taxation. It can’t create euros. When they had the drachma, they could create more of them to repay debt which lowered the value of the drachma which triggered other corrective measures in the economy. They suffer now because those corrective measures are no more.

    https://en.m.wikipedia.org/wiki/Modern_Monetary_Theory

    1. Creating more dollars, if taken to extremes, leads to economic disaster (hyperinflation followed by economic collapse).

      I don’t know the exact number, but I saw an estimate of USD$2.1T of physical currency plus bank reserves that can be transformed into physical currency. If you think that the fed can print $20T in cash to pay off the debt without screwing up the world financial markets, then you need to think again.

      1. Of course, Venezuela is a classic example of hyperinflation due to the wanton printing of money that is not supported by underlying IOUs that the gov’t will pay back. And, if the US were to become extreme, our borrowing rate would start to indicate that, which it has not. The markets believe that the US has the means to pay back its debt, and they believe that strongly enough to let us borrow at extremely low rates.

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