May 1 - Rob Cox and Breakingviews columnists discuss why Apple’s great big deal is really a story of what’s wrong with the bond market.
So the seventeen billion dollar love fest for apple bonds isn't just about apple is that it's also about. Where we are in this incredible market where everybody is searching for yield. Don't have a lot of options out there. And it's all gonna come tumbling down being disasters on record typically -- will -- But I think what we're seeing here is you know again though they're you they're used to be a little bit of fear that rates might rise of actually just a few months ago. And it just in that nobody is worried and and you say that because the fact that people put out that much money -- and I'm not very long took on material. I mean half the amount that apple rays will be returned ten to thirty years right right and there this year before I was a percent right so you're basically. Not thinking about interest rates rising anymore. I think this is also we are not just -- -- -- the Bank of Japan has come man in there and backing them up all these bonds. And so I think for investors I mean it makes a certain amount of science. But again we we've been through stuff like this before where there's an assumption and like this time it's you interest rates an uprising last decade it was home prices never. It's not just in the huge apple bond deal that we see -- we've seen in. Pick toggle and a whole bunch that was evident by releasing I mean you're seeing again I dividend recaps in Europe are are basically. Running at a pace and this is where -- leveraged company. But it borrows more money to pay dividends to usually it's private equity and -- Companies more indebted threat but we've learned of course bacteria you'll ever bring your levering up a company. At a time -- hear the sparring with for. -- I mean this -- not like it's booming time when growth is great -- can afford this because letting guys run advantage of it but the bondholders are ending up with paper that's a lot. More risk meanwhile this is just to chase for any -- -- and I mean if the fear is that deflation is taking over it's not a cent of the central banks coming in buying up these assets that that. Investors are panic that they're gonna actually you know investments be worth less than in -- year -- get. Even a 1% guarantee deal of this nothing occurred apple though a thirty year bat on the -- -- I wouldn't take it. Been around pregnant -- -- there's another issue when you're thirty year bonds which you know. Pension funds are desperate for a long dated paper because they have these applications that also come doing here. But they're buying this when their investment target is 8% this half lifting the wealthy business audience kind of these debt. They can lever up there. But they can't so -- -- they have an 8% assumption they're buying bonds at 4% there's still 400 race it's not going to help them out either better at it otherwise noted here if you give deflation and he hit 4% inflation in their target. I mean -- 4% which I'm not. I wouldn't argue that but again and he didn't see your percent deflation in a country -- still dealing with leverage and endless trouble I mean again it's like you're debts become. Thicker and a deflationary environment that I get and it's like and then companies also have. What's the incentive to hire people when everyone is holding back holding onto whatever savings they do have a fail us so basically long story short. The this great Big Apple deals about the rotten -- the bond market. He uses that metaphor OK we've got -- more breaking views tomorrow.