The world’s biggest companies are in a race against the clock.
Apple, the most valuable company on the planet, and Royal Dutch Shell are raising cash in the U.S. bond market, taking what may be one of the last chances to lock in borrowing costs while they’re near record lows.
The iPhone manufacturer is marketing $8 billion in its fourth multibillion-dollar offering since 2013 to boost shareholder capital while it keeps its cash holdings abroad. Shell is selling bonds through its U.S. unit for the first time in 18 months.
The companies are coming to the market as economists project that the Federal Reserve will boost its benchmark interest rate this year after holding it close to zero since 2008. Companies have issued more than $653 billion of dollar-denominated debt in 2015, up 8 percent over the same period of 2014, a year when a record $1.57 trillion of bonds were sold, according to data compiled by Bloomberg.
“Everyone and their brother is coming to market now,” Jack Flaherty, a money manager at New York-based GAM USA, which oversees $17 billion, said in an interview. “There’s a herd mentality forming. Rates are still low, but momentum for higher yields has surfaced, and so there is a bit of a rush to lock these levels in.”
The yield on the 10-year Treasury note, a benchmark for everything from corporate debt to mortgages, has risen by 33 basis points since mid April to 2.22 percent. And after touching the lowest levels in almost a year last month, average yields on investment-grade debt have risen, climbing to 3.08 percent, in the midst of a third straight week of rising borrowing costs, according to Bank of America Merrill Lynch index data.
“Companies are all getting in before the Fed liftoff,” said Jennifer Vail, head of fixed-income research for Minneapolis-based U.S. Bank Wealth Management, which oversees $112 billion. “We may see a retrenchment later in the year, but for now, companies are still coming, and for the right reasons, firming up their balance sheets further.”
Apple will use proceeds to back stock repurchases, capital expenditures, acquisitions and debt repayment, said a person, who asked not to be identified because of a lack of authorization to speak publicly.
“It’s much cheaper to issue debt with the current very low interest rate environment and return the cash to shareholders that way,” Jordan Chalfin, an analyst at Creditsights, said by telephone.
Shell is selling debt in as many as five parts, with the longest-dated bonds maturing in 30 years yielding about 1.4 percentage points more than comparable Treasuries, according to a person with knowledge of the offering. Proceeds will be used for general corporate purposes.
The Hague-based company last issued dollar-denominated debt in a $4 billion offering in November 2013, Bloomberg data shows.