General Motors Company (GM), Berkshire Hathaway Inc. (BRK.A), Apple Inc. (AAPL): The Bond Market Has Only One Way To Go

Apple Inc. (NASDAQ:AAPL) had zero debt until it sold $17 billion worth of bonds six weeks ago. They all had very low yields. But the extreme series was 30-year bonds that yielded 3.85%. That’s way too low for a 30-year bond. Obvious to anyone (but to Apple Inc. (NASDAQ:AAPL) bond holders..), anything can happen in 30 years, especially to a technology company like Apple Inc. (NASDAQ:AAPL) which has risen and fallen several times in the not-so-distant-past. Now, based on historical figures, high quality bonds (issued by high quality companies like Apple Inc. (NASDAQ:AAPL)) normally offer about 300 basis points (3%) more than U.S Treasuries. With the U.S Treasuries at 2.5%, I think that Apple Inc. (NASDAQ:AAPL)’s 30 year bonds should yield somewhere in the area of 6% for them to provide any real margin of safety. That means that their price should drop by about 36% from the price at issuance. As of last week, the wheel has started to turn against Apple Inc. (NASDAQ:AAPL) bond holders. The price of the 30 year series dropped severally to yield 4.49 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest price since they were issued April 30.

A Foolish warning

The bond market has simply no way to go but down. For the past 3 years, companies have been issuing debt in staggering amounts and at ridiculous rates. Investors have been tempted to buy these bonds and sacrifice their principal in return for a few measly percentage points. The case of Apple’s bonds is the first indication to what the future holds in store for the general corporate bond market. Beware.

The article The Bond Market Has Only One Way To Go originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Apple, Berkshire Hathaway, and General Motors. The Motley Fool owns shares of Apple and Berkshire Hathaway. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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