Apple Shares Gain After $8.5 Billion Bond Sale Supports Buyback, Dividend Plans

Apple priced its benchmark 10-year bonds at just 1.1% above U.S. Treasury note yields amid one of it cheapest debt financing moves on record.
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Apple  (AAPL) - Get Report shares traded higher Tuesday after the tech giant raised $8.5 billion from a four-part bond sale that will partly fund its buyback and dividend plans.

Apple sold four separate bonds, maturing between 2023 and 2050, with coupons ranging from 0.75% for their three-year paper and just 1.75% for their benchmark 10-year notes. The $8.5 billion raised will help fund the $38.5 billion in share buybacks over the three months ending in March, and the $50 billion announced as part of the company's second quarter earnings last week.

Apple's $8.5-billion bond sale follows the largest U.S. corporate bond offering on record last week -- at least in terms of a sale that isn't tied to a merger -- from Boeing Co.  (BA) - Get Report, which raised $25 billion in a move that allows the planemaker to avoid taking CARES Act support that could have forced it to cede some equity to the government.

Boeing paid a 450 basis point premium to U.S. Treasury notes for its 10-year bonds, compared to around 110 basis points for Apple's benchmark paper. Reuters noted that Refinitv data suggested the overall financing was priced at the cheapest levels since 2013.

Apple shares were marked 1.1% higher in early trading Tuesday to change hands at $296.38 each, a move that would just nudge the stock into positive territory for the year.

U.S. corporate bond sales have surged over the past month after the Federal Reserve said it would buy unlimited amounts of government debt and mortgage-backed securities and, for the first time, purchase around $100 billion in corporate debt in order to "support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy." 

Prior to the Fed's action, corporate borrowing costs had risen to the highest levels since 2009 even as the central bank cut its benchmark Fed Funds rate to a record low 0% to 0.25% on March 15. 

Since then, corporate bond spreads -- the premium that investors demand to hold company debt instead of triple-A rated Treasuries -- has narrowed considerably, with high-yield spreads falling from 10% on March 23 to around 7.5% this week. 

The BlackRock iShares investment-grade bond ETF  (LQD) - Get Report, as well, has risen nearly 23% from its March 19 nadir to trade at $128.54 in pre-market dealing Tuesday, while the iShares iBoxx High Yield ETF  (HYG) - Get Report has gained 14.4%.