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May 1, 2013

Investors snap up $17 billion in Apple bonds

First came the frenzy for iPhones and iPads. Now there’s a scramble for iBonds.

Apple Inc. sold $17 billion in bonds Tuesday, a gargantuan deal that ranked as the largest in global corporate history. And even though the securities are paying microscopically low interest, investors tripped over themselves to buy in.

In the financial equivalent of a line stretching around the block, investors reportedly submitted more than $50 billion in requests, or more than three times the amount available.

The demand stunned Wall Street, where fixed-income offerings are typically staid affairs generating far less hype than Facebook-type stock deals. But after a decade in which investors were bloodied by free falls in the housing and stock markets, the public is desperate for any investments viewed as safe.

“‘This is a bust-down-the-door deal,’ said Marilyn Cohen, president of Envision Capital Management in West Los Angeles. ‘I’ve been doing this for over 30 years, and I’ve never seen anything like this.’

Apple, whose stock skidded more than 40% in recent months, will use the money to fund a newly expanded program of dividend payments and stock repurchases. The company announced last week that it will return $100 billion to shareholders by the end of 2015.

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The U.S. economy expanded at a paltry 2.5% annual rate in the first quarter, which is too weak to chip away at an unemployment rate stuck at a still-high 7.6%.

But corporate profits have surged in the aftermath of the 2008 global financial crisis, in part through layoffs and feeble hiring. That has pushed up stock prices, with the Dow Jones industrial average climbing more than 13% this year and 125% since the market low in early 2009.

“‘It just exacerbates the divide between the already-haves and the have-nots,’ said Dennis Kelleher, chief executive of Better Markets, a nonprofit focused on financial reform in Washington. ‘The stock market’s doing great, the debt market’s doing great, corporate America is doing great, and Main Street is still suffering.'”

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Read full LA Times article here

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