SAFT ON WEALTH: Rwanda, iBonds and the madness of the bond market

Wed May 1, 2013 2:01pm EDT
 
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By James Saft

May 1 (Reuters) - In the past week we've had two object lessons in the madness of the bond market: Rwanda and Apple.

Apple Inc, maker of the ubiquitous iPhone and iPad, on Tuesday sold $17 billion of bonds, the largest-ever corporate issue, at rates of interest barely discernible with the naked eye.

Also recently, Rwanda issued a debut $400 million Eurobond in a sale that was heavily oversubscribed. As the market has taken to calling Apple's issue iBonds, you could easily call Rwanda's 10-year offering aidBonds, as foreign aid is one of the largest sources of government revenue for the tiny African country.

While Apple and Rwanda are at different ends of the risk spectrum, both deals neatly illustrate the headlong rush for anything investable and carrying something vaguely resembling an interest rate.

FRUIT OF THE TECHNOLOGY TREE

Apple's historic deal, its first since 1994, was priced closer to what a AAA borrower would pay, rather than a AA+ company with a dominant position in the turbulent tech sector. A $5.5 billion 10-year piece yields 2.45 percent, while three years gets you 0.511 percent, five years 1.076 percent and 30-years just 3.883 percent. Demand was stratospheric, with offers to subscribe totaling more than $50 billion.

For purposes of comparison, a 30-year U.S. Treasury bond yields 2.83 percent. The U.S. Treasury, while not possessed of the design savvy or cache of Apple, has access to something a lot more useful - a theoretically endless and costless supply of dollars the government can create to meet its obligations.   Continued...