Barclays U.S. Aggregate, Standard & Poor's U.S. corporate and other major bond indexes are expected to include $14 billion of the $17 billion in bonds Apple Inc. sold Tuesday, said Colin Robertson, managing director-fixed income, Northern Trust Asset Management.
“I expect (Apple bonds) to be included when the indexes rebalance at the end of May,” Mr. Robertson said, pointing out they will include only Apple's $14 billion in fixed-rate bonds.
“Its (Apple's) composition in the indexes will be a meaningful one and one of the more senior exposures in the indexes.”
In terms of Northern Trust's bond index funds, Mr. Robertson said, “We won't speak specifically about the Apple bonds that were issued in the market this week. But certainly as we strategize and manage our assets, on occasion we may purchase bonds prior to their ultimate inclusion in indexes.”
“When we are managing to a bond index, (fund) we don't buy every bond. It's not an absolute mirror image of the index. We hold many representative issues from the index. ….we manage to the index but we don't buy every bond in the index. It's not feasible (to buy every bond).”
Mr. Robertson wouldn't comment on the attractiveness of Apple's bonds or their pricing.
S&P expects to include $14 billion of the Apple bonds in its S&P U.S. Issued Investment Grade Corporate Bond index, based on the rules criteria for eligibility.
“Given the rules-based approach methodology, as long as they meet criteria one could reasonably expected bonds would be in the index,” said Kevin Horan, director-fixed income indexes, Standard & Poor's Dow Jones Indices.
The index is rebalanced at the end of May, and because Apple's bond pricing wasn't available Tuesday, its eligibility for rebalancing would occur at the end of May, Mr. Horan said.
The S&P U.S. Issued Investment Grade Corporate bond index has a market value of $3.4 trillion as of Tuesday's closing after its monthly rebalancing and a face value of $2.9 trillion. The index had 4,308 bonds, issued by 1,063 companies as of Monday's close.
S&P would include each of the fixed-rate issues in the index, if it is at least $250 million in face value. S&P doesn't include floating rate issues, Mr. Horan said.
If included now, Apple would rank 40th in the index in terms of companies accounting for the largest amount of total bonds on a market value basis in the index, Mr. Horan said. Apple's $14 billion in bonds would account for 0.4% of the index, Mr. Horan said..
General Electric Co. accounts for the largest share of the index with 56 bonds in the index with a combined market value of $108.8 billion, amounting to 3.18% of the index, Mr. Horan said.
Apple would represent 0.4% of the Barclays U.S. Investment Grade Corporate bond index and 0.1% of the Barclays's U.S. Aggregate bond index, Mr. Robertson said.
Apple's bonds are rated AA+ by S&P and AA1 by Moody's Investors Service.
Apple's fixed-rate bonds sold at narrow spreads to Treasury. For Apple's fixed rate bonds maturing in 2016, they were priced at 345 basis points, compared to 30 basis points of three–year Treasury securities; 2018, 1% compared to 65 basis points for five-year Treasury securities; 2023, 2.4%, compared to 1.63% for 10-year Treasury securities; and 2043, 3.85%, compared to 2.83% for 30-year Treasury securities.
Nolan Walsh, assistant vice president, Barclays index product group, didn't respond to requests for comment.