Treasury prices fell on Monday upon news that Apple was issuing $6.5 billion of debt. Yields on 10-year bonds rose by 2 basis points. Reporters first suggested that the large size of the offering – combined with Apple’s exceptionally low default risk – was enough of a substitute to draw demand away from Treasuries.
The Treasury market certainly has gotten shallower over the past year. One J.P. Morgan report suggests that it only takes a $80 million trade to move the Treasury market, compared to $280 million a year ago. It absolutely does seem reasonable that an corporate offering of that size could trigger a pullback.
However, yields at this point seem unsustainably low, as the prospect of rising interest rates looms in the near term. It might be best to look at Apple’s offering as a company taking advantage of debt market’s fairly weird state. Their offering signals that companies really are betting on a rate-increase later this year and that we were – and still are – due a pullback in Treasuries.