Falling bond prices are affecting Apple's cash reserves

Corporate bonds have been affected more than government bonds this year, since corporations have a higher credit risk. US government bonds are considered risk-free assets.

Apple had almost half of its cash reserves in corporate bonds as of the end of June 2022, at 46%. It marked that portfolio down 7.2%, or $6.4 billion, to an estimated fair value of $82.47 billion.

The company marked $4.8 billion down on a mixture of US and foreign government bonds and mortgage-backed securities, the total value of which by the end of that quarter was approximately $69 million.

During the nine months leading to June 25, Apple reported that bond losses shrank its cash and investments by 6%, or $11.3 billion. The decrease in value was the equivalent of 12% of its operating profits for the same timeframe, according to The Information.

Apple's investments have fluctuated along with the rest of the market but haven't swung back as firmly. Its $11.3 billion in paper losses compare with the $555 million in gains it had by the end of September 2021.

Apple had reported paper gains of $2.4 billion by the end of the fiscal year 2020, while its total cash for 2020 and 2021 was approximately $190 billion.

The company reported it made a record-breaking $83 billion in the third quarter of 2022, a 2% year-over-year increase from the $81.4 billion in revenue reported in 2021. It also had an earnings-per-share of $1.20.

Other companies have been similarly affected. Amazon has about one-third of its $60.7 billion in cash reserves in corporate bonds, and it marked its portfolio down 3% as of June 30. Likewise, Meta Platforms also had about a third of its $40 billion cash reserves in corporate bonds by the end of June.

Meta marked those bonds down 5.4% during the most recent quarter to an estimated fair value of $12.9 billion. The company marked its $16 billion in government bonds down another 3.3%.

Alphabet had 27% of its $125 billion reserves in corporate bonds at the end of June, marking it down 4.1% to an estimated fair value of $34 billion. It marked $2.47 billion down on its mixture of government bonds and mortgage-backed securities, whose total value on June 30 was an estimated $62.7 billion.

Of the big tech companies, Microsoft was affected the least by falling bond prices, since it chooses to keep most of its reserves in government bonds.

The company has about one-tenth of its $104 billion reserves in corporate bonds, which it marked down 4.7% to an estimated fair value of $11.1 billion. For its government bond portfolio, Microsoft marked it down 2.7%, or $2.2 billion, at the same time.

Bond prices are expected to drop further in the September quarter, which will continue to affect Apple's paper losses. As of Friday, October 21, the S&P 500 Investment Grade Corporate Bond Index has fallen over 19% in the year to date.