Tuesday, June 2, 2020

Thank You, Federal Reserve: Amazon Just Borrowed at the Lowest Rate in the Corporate Bond Market Ever

Amazon locked in some of the lowest borrowing costs ever secured in the US corporate bond market on Monday.

The company raised $10 billion in an offering that included three-year notes carrying an interest rate of just 0.4 per cent, reports the Financial Times.

The interest on the new three-year note was less than two-tenths of a percentage point above the rate  set on US government debt when it issued for a similar maturity in May.

The rate it secured on Monday was below the previous record low of 0.45 per cent secured in 2012 and 2013 by companies including Apple, IBM and Walt Disney.

Amazon’s new seven and 10-year borrowings carried coupons of 1.2 per cent and 1.5 per cent, respectively, also the lowest ever in the US corporate bond market, toppling a record set by the retailer Costco earlier this year, according to the financial data provider Refinitiv, whose records go back to 1980.

The coupon on Amazon’s new five-year bond matched a low set by the drugmaker Pfizer in May, at 0.8 per cent.

This is what happens when you have the Federal Reserve pumping out massive amounts on new money. Corporate bond issuance has passed $1tn already this year, a record pace.

But wait until the blowback comes with accelerating price inflation.

The buyers of these bonds are going to be big-time losers of buying power when Bezos finally pays them back.