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Apple’s decline is a ‘knee jerk’ reaction to what’s happening in equity markets: BondCliQ CEO

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Apple suffers its word day of trading since March. BondCliQ CEO Chris White joins Yahoo Finance’s On The Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Welcome back to On the Move, somebody's taking profits today. The Dow is off more than 600 points. Take a look at what's happening with Apple because it's tech stocks which are helping pull the markets down across the board. Apple is off, at this point, about 6.5%. But there's a bigger tech story going on.

So we want to bring into the programs right now somebody who has been a guest many times before. And it's good to have him back. Chris White is BondCliQ's CEO, he is joining us now from Brooklyn. And it's not just the Apple sell off that we're witnessing here, but you're also seeing a movement of people selling tech bonds. How is this all connected and playing into what we're seeing right now?

CHRIS WHITE: Sure, I think it's really important for your audience to, sort of, look at what's happening with Apple debt over the past three or four months because it'll tell the full story. You know, 2020 has been very, very kind to Apple in the debt capital markets. You know, in early May, Apple brought a deal to market that was oversubscribed.

I think they issued close to 9 billion in outstanding debt at very, very low yields. So we are seeing today maybe just a knee-jerk reaction to what's happening in the equity markets. We are seeing a sell off and a retrenchment in value for Apple bonds. But I would suggest that this is probably creating a yield pickup opportunity for people who have been patiently waiting.

Looking at Apple and the tech sector over the past month in terms of bond trading activity, Apple's been the most actively traded name. But on that activity, it's been relatively neutral in terms of buying and selling activity. Now, while today we are seeing a pronounced selling activity, I would expect that, by the end of the week, you're going to see some of the more savvy investors coming in and picking up Apple bonds that have a little bit more yield to them because Apple's obviously such a valued issuer.

BRIAN CHEUNG: As you mentioned, Chris-- it's Brian Cheung here. You mentioned that Apple is a valued issuer here. They're also very unusual in the amount of cash that they've had. They've been having the luxury of being able to tap debt markets as well as they have during this time. But does-- is there anything to be gleaned from maybe the action in Apple bonds selling to other markets, other markets that might be even riskier on their corporate debt?

For example, REITs with a lot of uncertainty right now, given where, you know, certain types of specifically commercial real estate markets are right now. Could you see this spillover going into other industries as well?

CHRIS WHITE: Well, it seems like a lot of the activity in the bond market is compartmentalized, especially when you're looking at REITs. Because what everyone's trying to understand is basically cash flows in the ability to pay off debt. And given that the REITs have different sectors, whether we're talking about, you know, REITs related to residential or commercial properties.

Those REITs are trading differently. So just breaking out, for example, of the last month of activity for REITs really related to hospitality and to residential properties, the news hasn't been that bad from a bond market standpoint. Where REITs are starting to get hit, at least where we're seeing pronounced selling, is REITs attached to bonds that have cash flows from commercial spaces.

And I think we all can recognize that, especially anyone in the tri-state area if you've been walking around normally busy streets in midtown and downtown. It just feels like, you know, there's an oversupply problem when it comes to commercial real estate. And so what bond investors are doing or trying to anticipate who's really going to have an issue in paying off their obligations.

And it seems like what they're saying is they still believe the commercial REITs need to offer more yield in order for them to step in. One signal, I think, for any investor in REITs, whether it be stock investors, whether it be bond investors, is look at the very public fight that's happening between tenants and anyone who's at, sort of, a, you know, temporary office spaces.

So WeWork is playing out very publicly that tenants are now starting to sue WeWork, you know, in terms of trying to claw back the rent, where they're breaking leases. I think that that's just a bit more transparent information around what might be happening across the broader commercial REIT community.

JULIA LA ROCHE: Hey, Chris, thank you so much for joining us. And that's an interesting point you bring up that you can get various signals, and it's one of the reasons I enjoy talking to folks who are in the bond market because I always find that they have interesting insights. What are you seeing that might be more positive or kind of instill a bit more optimism for you?

CHRIS WHITE: Well, I think the trade that's been going on in the bond market has really been a follow the Fed trade. And it's where people are picking companies that, I think, all the fundamentals would say this is a stay away. But we know that the Fed and, you know, the government deems these companies to be important enough to step in and provide taxpayer funded stimulus.

So we're seeing some things like, you know, Carnival Cruise is coming and being able to get a new issue deal done. And we're seeing, you know, people buying American Airline bonds close to par. I think that's because the real trade that's been happening in 2020 is if the Fed's buying those bonds, then you've been able to make money as an investor if you just followed along with what they've been saying in terms of their support for US companies.

ADAM SHAPIRO: Hey, Chris, when you bring up-- you brought up American Airlines. I got to ask you because there's a potential for another $25 billion in stimulus for the airlines. That would have an impact on their ability to sell debt going forward, or it would make it less risky. Is that already being priced in, as you're alluding?

CHRIS WHITE: Absolutely. I think many of the people involved in the market at an institutional level are participating in these primary deals, and these deals are oversubscribed. And so if they're oversubscribed, they've got to know something. You know, we've written about what's happening in the airline industry so that people can get a little bit more details.

But it's just, if you're looking to trade credit based on the underlying fundamentals of what's going on with US companies, you've been getting really hurt this year. Because everything would tell you that, you know, airline bonds are overpriced, and, certainly, cruise bonds are overpriced. Yet, when those bonds come into the marketplace, they're being bid up and yields are low and shorts might be getting destroyed because people know that the fed does have a corporate bond purchase facility.

And even if they're not directly buying those bonds, it's the threat that they might buy those bonds that's increasing the value. Now, just [INAUDIBLE]--

ADAM SHAPIRO: [INAUDIBLE] to point out-- oh, finish your thought.

CHRIS WHITE: Oh, sorry, go ahead, Adam. Well, I-- just the last point I wanted to make around American Airlines, because I was shocked when I read this, but the CEO of American Airlines said that effectively, their expenses are about $50 million a day. So $25 billion sounds-- in stimulus sounds like a lot to you or me. I mean, we probably would be doing this show on a private island.

But $25 billion does not last American Airlines very long. It probably won't take them through Q1 of 2021.

ADAM SHAPIRO: You know, and that's an issue with all the airlines. Their earnings report, the cash burn, the daily cash burn is a key metric. I think Delta got theirs down to about $20 million a day. We got to let you go, but we always appreciate your insight. Chris White, BondCliQ CEO. Good to have you.