Cook’s Apple could prompt indigestion
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Cook’s Apple could prompt indigestion

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The central banks aren’t the only 800lb gorillas in the bond market. How tech companies choose to liquidate their investments and hand cash back to shareholders could drive the outlook for bonds just as much as monetary policy.

Apple is a pretty big phone company, a pretty big music service, and a company with a lot of spare cash. So much cash, in fact, that its investment portfolio of $270bn, managed through its Braeburn Capital subsidiary, clocks in at the size of a decent sovereign wealth fund — smaller than Qatar Investment Authority but bigger than Temasek.

While investors are attuned to every twitch of Mario Draghi’s eyebrows, Apple’s investments deserve to have the same kind of attention lavished upon them. With a portfolio that size it has huge market power, but no particular mandate for ensuring market stability.

This week, it announced it was returning an extra $100bn to shareholders, on top of a $210bn buy-back it has just completed. Numbers that large ought to give investors in any market pause for thought.

But the reaction in the bond markets has been somewhere between muted and non-existent. The company gave no deadline for the buy-back, and Apple throws off so much cash that a speedy liquidation of the $100bn or so of corporate bonds it holds is unlikely.

Unlikely in the short term, but it is surely coming. One has to assume that most of the shareholders in the firm invested their money because they think the underlying Apple businesses are strong, and not because they wanted to hold a bucket load of investment grade bonds indirectly.

That means, now the tax treatment is sorted, that sooner or later the firm will start selling assets, rather than just sit on them indefinitely, central bank style. Skinny dealer balance sheets will quickly be overwhelmed by flows as large as Apple can generate, so investors need to watch out for Apple’s next big launches: iLiquidity  and an iPlunge .

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