Apple bond sales sound alarm on lending

Apple Inc's mega bond sale is fueling speculation US interest rates are poised to increase.

The iPhone maker sold $6.5 billion of debt on Monday, locking in borrowing costs for as long as 30 years. The sale follows a plunge in benchmark Treasury yields, with US 30-year borrowing costs falling to a record low last week. Yields may not stay this low if forecasts for the Federal Reserve to raise rates are correct. Apple's last sale in 2013 coincided with the record low in company borrowing costs.

"This is the right time to issue corporate bonds," said Kim Youngsung, the head of overseas investment in Seoul at South Korea's Government Employees Pension Service, which manages the equivalent of $13.7 billion. "Interest rates will go up in the middle of this year."

The Treasury 10-year yield was little changed at 1.67 percent as of 2:03 pm in Tokyo, according to Bloomberg Bond Trader data. The price of the 2.25 percent note due in November 2024 was 105 7/32. The yield fell to 1.64 percent on Jan 30, approaching the all-time low of 1.38 percent set in 2012.

Thirty-year yields were at 2.26 percent after dropping to a record 2.22 percent last week.

Apple, based in Cupertino, California, last sold bonds on April 30, 2013. The $17 billion issue was the biggest corporate-debt offering ever at the time.

The US average investment-grade corporate bond yield fell to an all-time low of 2.64 percent two days later on May 2, 2013, based on Bank of America Merrill Lynch data that go back to 1996. The yield is now 2.90 percent, which compares with the average of 5.38 percent during the period.

Futures contacts indicate there's a 63 percent chance the Fed will boost its benchmark to at least 0.5 percent by December, according to data compiled by Bloomberg. Policymakers have kept the target for overnight loans between banks in a range of zero to 0.25 percent since 2008.

It's not a sure thing that US government and corporate bond yields will push higher, said Will Tseng, a portfolio manager in Taipei at Mirae Asset Global Investments Co, that oversees $63.9 billion.

"Even if the Fed starts its first rate hike this year, it doesn't mean the overall interest-rate environment will be very high," Tseng said. "The policy rate is still lower than 1 percent. I don't think corporates should be afraid of a higher-rate environment."

The US 10-year yield will climb to 2.75 percent by year-end, according to a Bloomberg survey of economists with the most recent forecasts given the heaviest weighting.