Prompted by U.S. tax cuts, Apple and others dump bonds and create $300 billion market hole

“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.

Apple’s corporate debt holdings drop for first time since 2013 – May 4, 2018
Apple expected to issue less debt in 2018 now that President Trump has signed the Tax Cuts and Jobs Act – January 16, 2018
Apple to tap debt market with six-part bond deal that could raise $7 billion – November 6, 2017
Congressional Republicans deliver epic overhaul of U.S. tax laws to President Donald Trump – December 20, 2017
Republican-controlled U.S. Congress poised to approve biggest tax system overhaul in 30 years – December 19, 2017
GOP tax cut plan sets 15.5% repatriation rate on offshore cash; 8% if invested in plants and equipment – December 16, 2017
GOP eyes taking bigger bite from Apple, others holding cash overseas to seal President Trump’s tax cuts – December 15, 2017
Apple could be biggest beneficiary of Republican tax reform plans, saving at least $47 billion – December 6, 2017
Dow soars 203 points higher to record as Wall Street cheers U.S. Senate passage of major tax bill – December 4, 2017
Oracle joins Apple in support of President Trump’s tax repatriation plan – November 7, 2017
President Trump’s tax cuts could be YUGE for Apple – September 28, 2017
GOP tax plan calls for cutting the corporate tax rate from 35 percent to 20 percent – September 27, 2017
Goldman Sachs sees $1 trillion in U.S. tax cuts coming – September 20, 2017
Apple will eventually bring billions of dollars back to the U.S. under President Trump’s tax reform plan – July 21, 2017
President Trump’s tax reform plan includes deep cuts in corporate taxes – April 26, 2017
Apple could be primed for profit explosion under President Trump’s big tax cut – April 26, 2017


      1. Simply reducing the repatriation tax rate for corporations didn’t do that. Reducing taxes in general and especially for the rich & corporations did. It should have just been reducing taxes for foreign earned money brought back here to the same rates most other countries charge. If the dummy Dems had done that then maybe this more damaging tax rate reduction rear effects future generations wouldn’t have happened.

  1. Translation: The wealthy have begun milking the commons, enriching themselves, thus increasing economic disparity between fat cats and poor, expecting Socialism to maintain and repair infrastructure on which they put disproportionate pressure.

      1. Hey Peter, you are so right. That Jackass Dingle, Jacktiste, is a socialist nightmare of Barrackian proportions.

        A giant Eff U to the Dingler, whose dongler dangles between his twin brain cells – yes, they’re down there beside his crack, right where they belong

        Eff you, Dingles, you artist of doom, destruction and socialist effstu-piditity.

    1. Yeah, it means Apple is getting rid for of short term debt it took on while it waited for a more reasonable repatriation tax to bring back its motherload of overseas cash. Exactly what they should do.

  2. Dingler, you are right but keep it quiet as you will piss off the trump supporters as they still think they made out on the tax giveaway to the rich.
    Ps. Don’t you just love our new shiny 2000 mile 100 ft high wall. And it’s free. Paid for by México.

    Ain’t life under the king so sweet??😜

    1. Trump does operate like a monarch, you know, dispensing decrees via Twitter. At least he’s an Apple user so he’s not all bad.

      The corrosive effect of his tax cuts to the wealthy is that it makes the poor relatively poorer because he did not cut taxes to the poor. This means, again relatively speaking, that the poor will pay a larger percentage of their income for Socialist services such as highways, parks, fire departments, schools, etc.

  3. Returning those funds to the US was not that big deal for Apple.

    First, the overseas funds provided liquidity for international operations as well as issues like funding plants & equipment for suppliers that would be used exclusively for Apple. That is a massively power benefit for Apple.

    For unused overseas funds, they are invested, earning income to offset their borrowing costs. The costs of playing with overseas cash is therefore easy for Apple to handle.

    Apple’s effective tax rate was about 25% so they are not gaining a significant benefit. Apple might well have been better off if the tax cuts moved money towards the low end of the income scale instead of the Billionaires Boys Club.\

  4. There is one simple reason why tax cuts initially benefit the rich – they pay the most taxes. The bottom 50% of Americans pay zero federal income tax and many get tax credits.

    However, the tax cuts directed at capital investments is having a great effect on the economy. Black and Hispanic unemployment at record low levels while incomes are rising. New black business ownership rose 400% and people are feeling much better about the economy that in the past 20 years.

    Those are real numbers. Giving stimulus dollars to the poor does nothing to restart the economy as both Bush and Obama tried. You can’t create long term demand with short term cash. Instead, give it to the people that like to multiply their assets and you create jobs for everyone.

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