The FOMC minutes from the July committee meeting warned that the pandemic would “weigh heavily on economic activity, employment and inflation in the near-term”, with “considerable risks to the economic outlook over the medium term”. The central bank also noted that it will refrain from giving any forward guidance on tightening rates at this juncture and will instead look to sharpen its guidance “at some point” (as opposed to previously stating that guidance will be given “at upcoming meetings”). Due to what Fed Chair Powell highlighted as extraordinary uncertainty, the minutes also noted that “additional accommodation could be required”; which suggests that ultra-loose monetary policy is here to stay. We may get further hints on monetary policy and economic forward guidance from what would have been the Jackson Hole annual monetary policy symposium, now to be held virtually (for the first time in ~40 years), on August 27-28. The next FOMC meeting is scheduled for the 15-16 September; we doubt there will be any meaningful data to suggest a material uptick in sentiment between now and then, we therefore continue to favour high-grade bonds issued by “wealthy” sovereign and quasi-sovereigns.
Equity markets backed-off following the minutes’ release and US futures markets remain rocky this morning. However, one outlier yesterday was Apple which saw its market value hit USD 2tn; Apple is the first US company to breach USD 2tn and is therefore the most valuable company globally. We remember writing about Apple reaching a valuation of 1tn around two years ago! Saudi Aramco was the only other company to have ever been valued at the USD 2tn level and is now ~USD1.8tn.
Following the bumper USD 8.5bn multi-tranche issuance in May, Apple returned to the market with a four-tranche, USD 5.5bn offering last week, with maturities ranging from 5-40 years. Some might wonder why a company with cash holdings close to USD 200bn would need to borrow USD 14bn, so far this year; Apple is clearly making the most of the record low borrowing costs and using this opportunity to extend the duration on its borrowings as well as reduce average interest rate costs. The Aa1/AA+, 40-year bond was issued at 118bps over USTs, tightened from an initial 135bps. The bond was fairly priced, if we compare it with A2/AA-/A+ rated Amazon, which issued its 40-year tranche at 130bps over, and Aa2/AA+rated Google, who’s 40-year bond came at a spread of 108bps over back at the beginning of the month. Although we did not participate in the new issue, we do favour Apple, and it remains a core corporate position across our global strategies.