(Bloomberg Opinion) -- Apple Inc. is no stranger to causing sticker shock with its newest products. It’s about to find out whether it can create a similar reaction among U.S. corporate-bond buyers with its latest debt offering.The technology giant is taking the rare step of issuing dollar bonds for the second time in the same calendar year. When Apple borrowed $8.5 billion in May, the 10-year portion priced at a yield that was 110 basis points more than benchmark U.S. Treasuries. The 10-year part of the new deal is being marketed at a spread of 75 basis points and seems destined to tighten from there. The average yield spread on double-A corporate bonds has narrowed by more than 50 basis points since Apple’s last offering, Bloomberg Barclays index data show, suggesting the iPhone maker could lock in a 10-year rate around 1.25%. To put that in context: Before this year, the U.S. government itself had never borrowed so cheaply.At this point, few superlatives are left to describe the relentless rally in investment-grade bonds. As Bloomberg News’s Molly Smith reported, companies from Amazon.com Inc. and Google parent Alphabet Inc. to Visa Inc. and Chevron Corp. have all set record-low interest rates across the corporate yield curve. Chevron’s two-year debt priced with a 0.333% coupon; Amazon’s three-year securities offered 0.4%; and Visa’s seven-year bonds offered 0.75%, outdoing Alphabet’s 0.8%.Apple’s all-in borrowing costs probably won’t be lower than those of Alphabet, which timed its deal perfectly and sold debt just before Treasury yields increased by the most in two months. But the fact that the iPhone maker is piling into a market already grappling with never-before-seen interest rates might be enough to start causing investors to bristle, particularly given the recent wave of encouraging economic data, such as U.S. initial jobless claims falling below 1 million for the first time since the coronavirus pandemic took hold. In theory, such a rebound would lead traders to rotate into riskier assets.Then again, it’s not as if investors are shunning equities or high-yield bonds. Junk-rated Ball Corp., an aluminum-packaging company, issued $1.3 billion of 10-year securities at 2.875% earlier this week, the lowest ever for a U.S. speculative-grade deal with a maturity that long. Meanwhile, like much of the technology sector, Apple’s stock price is almost 40% higher than it was in February. The company plans to use debt proceeds at least in part to buy back shares and pay dividends.The Federal Reserve is the elephant in the room, of course, even if Chair Jerome Powell has specifically said the central bank doesn’t intend to “run through the bond market like an elephant.” Its Secondary Market Corporate Credit Facility has bought $55 million in Apple debt across eight separate securities, according to a disclosure of purchases through July 29.(1) In the grand scheme of things, that’s not all that much, given that companies have sold almost $2 trillion of bonds and leveraged loans just this year. But the backstop effect matters just about as much as the actual amount it owns. As I wrote last month, given the company’s tendency to use the money it raises to conduct share buybacks, it’s not quite the Fed buoying Apple stock, but it’s awfully close.More important, the Fed’s facility creates the perception that there’s virtually no risk in holding investment-grade U.S. corporate bonds — it’s practically free money as long as it offers any sort of yield pickup relative to Treasuries. That’s why investment-grade bond funds have experienced consecutive weekly inflows over the past four months that collectively have exceeded $100 billion. Eight of the 10 largest inflows in history have have come during this streak:I was asked on Bloomberg Radio earlier this week if there was an asset class I thought had run too far, too fast. It’s a tough question for anyone when gold prices soared above $2,000 an ounce and the S&P 500 Index exceeded its record close in just 175 days. I flagged investment-grade corporate bonds simply because these type of one-way flows make me nervous, given their propensity to create both virtuous and vicious cycles. I see the arguments for why there’s more room to run — remarkably, average corporate-bond spreads are still 39 basis points wider than their tightest levels from the past decade — and wouldn’t necessarily bet on the credit rally fizzling out, let alone sharply reversing its gains. But at a certain point, investors in any asset class need to pause and take a breather. That process might not begin with Apple, but its bond sale is bound to splash yet another jarring interest rate across trading screens.(1) For those interested, the specific CUSIPs are: 037833DV9, 037833AR1, 037833AK6, 037833CG3, 037833CM0, 037833DL1, 037833DT4, 037833BS8.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Chevron Corporation (NYSE: CVX) today announced a Series A investment in Zap Energy Inc., a Seattle-based start-up company developing a next-generation modular nuclear reactor with an innovative approach to advancing cost-effective, flexible, and commercially scalable fusion.
(Bloomberg) -- Israel’s energy minister is “confident” the country’s regulators will allow Chevron Corp. to operate the local natural gas assets of Noble Energy Inc., despite a campaign by environmentalists to stop that from happening.A public hearing about oil spills elsewhere in the world involving Chevron, which agreed to buy Houston-based Noble for about $5 billion last month, is “not necessary,” according to Energy Minister Yuval Steinitz.“With natural gas, there is no problem with spills,” he said in a phone interview on Tuesday. Natural gas is evaporating into the air “all the time. This is a natural process,” Steinitz said.Environmental activists have tried to delay investments in Israel’s emerging gas industry before, albeit with little success. In December, hundreds of people protested over concerns that production at the nation’s biggest deposit, the Leviathan field located six miles (9.7 kilometers) from the shoreline, would worsen air quality on land.Noble operates and holds stakes in Leviathan, which started producing in December, and Tamar, Israel’s second-largest gas field. Those interests account for 61% of Noble’s value, HSBC Holdings Plc said in a research note last month.Leviathan has a capacity of about 1.2 billion cubic feet a day of gas. But output can be increased significantly with more investment, Yosef Abu, the CEO of Delek Drilling LP, a partner in the field, told Bloomberg Television on Wednesday.Israel’s shift to gas from coal and diesel is leading to a decrease in air pollution from the energy industry for the first time, Steinitz said. His ministry aims to cut coal use completely by 2025, replacing it with solar power and natural gas.Israeli environmentalists claim Chevron is more tainted than its rivals when it comes to pollution. Last year, the company had to clean up nearly 800,000 gallons of oil and water that leaked in Kern County, California. In 2013, it agreed to pay $42 million to settle lawsuits over spills off Brazil’s coast.“The Chevron track record is to cut and run and litigate rather than respect local laws,” said Yosef Abramowitz, chief executive officer of solar energy company Energiya Global, and a signatory of the appeal to reconsider Chevron’s entry into Israel. “They have a terrible track record on spills.”Energy stocks rallyIn an e-mailed statement to Bloomberg, Chevron disputed Israeli activists’ claims. The company said it enhanced “important safeguards,” including 24-hour surveillance to prevent seeps, after the California spill and that it responded “responsibly and transparently” to the Brazil incident.Israeli energy stocks have rallied since the tie-up between Chevron and Noble was announced on July 20. That’s partly because San Ramon, California-based Chevron would probably boost the Mediterranean country’s gas exports, according to several analysts. Noble rose 0.3% to $10.68 at 9:49 a.m. in New York.Steinitz said he has since had a “very good” call with CEO Mike Wirth. The minister declined to say how the energy major would be involved with the so-called EastMed pipeline project, a 6 billion euro ($7 billion) plan to connect gas from Israel and Cyprus to buyers in southern Europe.“If Chevron can work in Canada, in Britain, in Japan and in Australia, there is no reason it won’t be able to work in Israel,” Steinitz said. “We are not going to boycott Chevron, and we are happy that Chevron is not boycotting us.”(Updates with Noble stock price in 11th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.