Almost 1,500 high-grade corporate bonds issued by some family names are currently trading at a discount of between 50 and 80 cents on the dollar, giving investors the chance to pursue handy returns.
Bonds issued by Apple Inc., Google Parent Alphabet Inc. GOOGL, Walt Disney Co. DIS, and Comcast Corp. CMCSA are among those included in the list. The option to buy A-rated bonds is available at a steep discount, which will pay out at par when they mature.
CreditSights' head of global strategy, Winnie Cisar, said it is not a huge surprise to find these companies on the list, as the highest quality names are the ones that have access to the cheapest borrowing costs. And it was possible to take advantage of that access during the long period of zero interest rates that followed the current rate-hiking cycle. The interest-rate cycle is moving in the opposite direction now, enabling investors to buy reduced bonds already in circulation.
For example, Apple AAPL, for example, issued $17 billion in 2013 bonds to raise the funds for a $100 billion shareholder-return program. At that time, Apple preferred to borrow money and avoid the 35% tax it would have had to pay on cash repatriated from overseas. At that time, another $12 billion of its total cash pile was located abroad.
The iPhone maker was able to issue a 3-year note at just 20 basis points above the higher-rated 3-year fixed-rate Treasury note, which was trading at 0.326% at the time.
Apple's notes were priced at 40 basis points over the 5-year Treasury note, 75 basis points over the 10-year Treasury note and 100 basis points over the 30-year Treasury bond, MarketWatch reported at the time.
Since then, Apple has repeatedly tapped the bond market and have obtained similar low coupons. Now that the Fed has raised its key Federal-funds rate to a target range of 5.25%-5.5% in 11 moves beginning in March of 2022, those bonds have reduced in price, while their yields have increased above 5%. This is because of the inverse relationship between bond prices and yields and not because of any credit quality issue.
Cisar issued a note on Tuesday pointing out that the investment-grade yields globally are approaching their cycle highs at 5.9 in the U.S. and 4.4% in Europe, bringing the value of high-quality corporate bonds to their lowest levels since November of 2022, with double-digit discounts to par across both markets.
It's pretty dire,' John Hancock strategist John Hancock said of sentiment on Wall Street as bond yields continue to rise.
It hit 2,209 on Oct. 31, 2022, when the U.S. 30-year Treasury hit 4.30%.
The 30-year is now pushing 4.70%, and as the line graph shows, the daily bond count is at its highest since the 2022 peak at 1,432. And spreads have tightened by a wide margin in the interim period.
The investment has been proven to be a profitable investment. The following chart depicts the volume of trade over the past 10 days by trade type, revealing a healthy mix of buying and selling on solid volume.
The next table highlights high-quality names from the Technology, Media and Telecom industries and includes their stock tickers.
Smaller investors, including individual retail investors, can take advantage of these discounted bonds in a variety of ways, Cisar said.
They can buy single-name bonds by going through a broker, including discount brokers like ETrade MS, or Charles Schwab Corp. SCHW.
s a public registered bond and not part of the private markets, she said.
A mom-and-pop investor may not get the same pricing as an institutional investor given the difference in order size, but should be able to get close to the current discounts, Cisar said.
Investors can also add long-dated corporate bonds to their portfolios by using mutual funds or an ETF like the iShares 10-year investment grade corporate bond ETF IGLB.
Investors will be taxed on interest income and capital gains if they buy and sell bonds, so they need to consider a tax strategy.
They don't need to go too far out the maturity curve, with higher-grade 10-year bonds also trading at discounts that will pay out in full when they mature. For example, this might be helpful for parents saving for a child's college education.
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