MW Worried about the volatility in Magnificent Seven stocks? Take a look at the companies' short-dated bonds.
By Ciara Linnane
Two-year bonds issued by the tech companies known as the Magnificent Seven are currently yielding more than 5%
Investors who are worried about the recent volatility in the stocks of the so-called Magnificent Seven group of tech companies, or who just want to put some cash to work, could consider some of their shorter-dated bonds.
Many of the group's two-year bonds are currently yielding more than 5% following the recent run-up in Treasury yields, and they are all available at a discount. That could mean handy returns for investors with a shorter-term horizon.
One caveat: Only six of the group have outstanding bonds. Tesla Inc. $(TSLA)$ is the outlier after issuing convertible bonds in the past that have since been converted to equity.
But Apple Inc. $(AAPL)$, Amazon.com Inc. $(AMZN)$, Google parent Alphabet Inc. $(GOOGL)$, Facebook parent Meta Platforms Inc. (META), Microsoft Corp. $(MSFT)$ and Nivida Corp. $(NVDA)$ all have two-year notes that are trading above or very close to 5%.
The 2-year Treasury is currently yielding 4.96%. On Tuesday, the U.S. Treasury will sell $69 billion worth of two-year notes that may come with a yield above 5%, which would further boost the yields on the high-quality bonds issued by the six big tech names.
All six issuers have ratings in the A category, and Microsoft has pristine Triple A ratings from S&P Global Ratings and Moody's Ratings.
Read now: Technology stocks show signs of 'breaking down' ahead of Big Tech earnings
The following chart from data-solutions provider BondCliQ Media Services shows the movement in yields over the past 30 days. The biggest move is in the Meta 3.5% notes that mature in August of 2027, which are up 51 basis points to yield 5.03%.
Apple's 0.7% notes that mature in February of 2026 have the highest yield, at 5.17%.
The short duration of these bonds means less volatility in their price, and as the next chart shows, they are all trading below par.
Apple has the most outstanding debt of the group after repeatedly tapping the market since 2013, mostly to raise the cash needed for shareholder returns. The iPhone maker was able to borrow for less than it would have cost to repatriate cash from overseas at that time.
The stocks of the Magnificent Seven have just come off a bruising week during which they lost a collective $950 billion in market value, the group's most ever for a single week, amid what one analyst referred to as "an unwind of the entire sector."
For more: The Magnificent Seven have gotten less magnificent ahead of earnings. This one could have the most explaining to do.
Four of the group - Tesla, Meta, Alphabet and Microsoft - are due to report earnings this week.
-Ciara Linnane
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April 27, 2024 06:01 ET (10:01 GMT)
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