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Last Week's Bonds and Apple's Bond Price



May 27, 2013 – Comments (1)

Last week's new bond issues included one that's funding a capital expansion program and could even result in some job creation.

Other than funding some capex, other borrowers profiled were mostly refinancing debt or paying for aquisitions.

CAPS bonus sidebar:  We've got an example showing that bonds, even high quality ones, aren't exactly risk free.  On 4/30, Apple sold 10-year, 2.4% bonds at 99.867% of face value.  The last trade on those bonds was 97.019%.  IMHO, a nearly 3% drop in value in less than a month doesn't exactly point to high-grade bonds being a safe, secure place to put money.  'course, neither are stocks, commodities, real estate, ...

As always, comments and questions welcome here or at the article.

Fool on!  Russ


1 Comments – Post Your Own

#1) On May 28, 2013 at 2:51 AM, somrh (83.76) wrote:

Regarding the fall in price of the Apple bonds. As of April 30, 10Y treasuries were at 1.67%. May 24 the rate went up to 2.01%. If you do the math (assume $100 par value and $1.67 per year coupon) the price of the bond (selling for $100 a month ago) as a result of the increase in interest rates would be $96.95.

I guess the moral here is that high duration bonds are more sensitive to interest rates so you should only invest in high duration bonds if you're going to buy and hold for a large part of the duration (of if you want to speculate on interest rates).

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