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The surprising potential victims of a bond bust

January 11th, 2020
1 minute read

Bonds
As we’ve been suggesting recently might happen, US ten year government bond yields are starting to rise fast. Bonds represent the last asset class to return to where they were before Corona while US stocks already made new all-time highs & oil is heading back to USD60. For bonds, rising yields means lower prices. Who could be impacted by this?

Investment?
You might be surprised to learn that the worst affected could be technology stocks. When we do our analysts at Sharpfokus we focus on sales, margins & investment spending to get the cashflow. Investment spending is normally for growing the business. But we notice that the tech stocks have been spending much more on marketable securities than property & equipment.

Big holdings
In fact they’ve even been borrowing money to do this. For example, Apple’s long term marketable securities at USD 101 billion is similar to their total debt of USD 112 billion! In the third quarter alone, Twitter bought USD 1.9 billion of marketable securities compared to spending USD 290 million on real capex...

Make sense?
You would think this doesn’t make sense. No company can borrow at rates cheaper than government, so they would lose money. But of course the bond prices have been going up as yields fall. Apple started to buy marketable securities when the yield was 5%. Last year the yield fell to 0.5%! The investments made sense while the price increased.

It’s a risk
Apple was first to get in. From only USD 7.8 billion of marketable securities in 2007 they increased holdings to USD 249 billion by 2017! Since then they have been selling & are now down to USD 154 billion. But other tech companies bought since 2017, so the net tech exposure is still very high. This is a surprising risk.
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