Investing in the Magnificent Seven Bonds

by webmaster

Investors are increasingly attracted to the bonds issued by the Magnificent Seven companies due to their attractive yields and high-quality reputation. Currently, these select 10-year bonds offer yields ranging from about 5.20% for Apple Inc. AAPL, -0.48% to 5.75% for Meta Platforms Inc. META, +0.62%. To put this into perspective, Apple’s implied dividend yield at current prices is only 0.54%, while Meta does not pay a dividend.

In addition to Apple and Meta, the remaining five companies in this illustrious group are Amazon.com Inc. AMZN, -0.50%, Alphabet Inc. GOOGL, +0.32%, Nvidia Corp. NVDA, -4.41%, Microsoft Corp. MSFT, -0.11%, and Tesla Inc. TSLA, +0.27%. It’s worth noting that Tesla does not have any outstanding bonds, as their convertibles were converted into stock.

Out of the Magnificent Seven, only Microsoft and Nvidia offer dividends, but even then, the implied yield on their stocks is quite low: 0.90% for Microsoft and a mere 0.04% for Nvidia.

Recently, the prices of these companies’ bonds have fallen as their yields have increased. This is mainly due to the Federal Reserve’s gradual raising of its key federal-funds rate over 11 moves starting in March of 2022, with the target range reaching 5.25%-5.5%. However, it’s important to note that this decrease in bond prices is not due to any credit-quality concerns but rather the inverse relationship between bond prices and yields.

For investors, this presents an opportunity to acquire these high-yielding and high-quality bonds at discounted prices and add them to their portfolios.

Data from BondCliQ Media Services reveals consistent buying activity in most of these bonds over the past 10 days, even as their stocks have experienced some setbacks. Nvidia is the exception, with net selling during this period. However, the spreads between some of Nvidia’s bonds and the yields of equivalent “risk-free” Treasury bonds have tightened. It’s worth mentioning that on Tuesday, Nvidia’s stock declined due to the announcement of expanded restrictions on semiconductor sales to China by the U.S. government.

Out of the Magnificent Seven, Apple has the largest amount of outstanding debt.

If you’re interested in diversifying your portfolio with corporate bonds, particularly from reputable companies like Apple, Disney, and Microsoft, now is a great time to take advantage of their attractive yields, which are currently available at discounted prices.

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