Bonds-A Real World Example.

Longer term readers of this blog know what I think of bonds right now.  If you don't know or want a refresher on the subject go here and most recently here.  If you want to see what people smarter than me think about bonds go here and here.   

The blog Zero Hedge yesterday showed a real world example of what happens to bonds when interest rates suddenly move higher.  Here's a real world chart of  some of the bonds Apple Computer {AAPL} recently sold.

Here's part of their commentary regarding the bonds:

"....Fast forward to today, or rather a month ago when on April 30 AAPL announced that in lieu of repatriating its $100 billion in offshore cash it would instead sell $17 billion in 3-30 Year bonds, a move which some speculated is an interim top in the bond market. They were right.

What followed was a quick and painful, for some, lesson in duration and bond math (and a reminder of what happens to both dividend stocks and rate-sensitive prices in a rising rate...supposedly...environment):

What happened? Well, Treasury yields soared. Which means that all linked instruments with duration exposure, such as the above AAPL bonds, got doubly crushed:

• The 10 year which priced at +75 (and par of course) has lost nearly 5 points of notional in less than a month.
• The 30 year (at +100) - down nearly 8. All of this in under one month.

Biggest winner here - Apple which raised hundreds of millions more by coming to market then and not now.  The losers? Those who bought the bonds. But don't worry: these are just paper losses, and paper losses never become real losses...."

To be fair Zero Hedge thinks that when rates begin to rise it will also not be good for stocks.  We'll see about that.  In general that is a correct statement, but I don't know from these levels whether stocks can't continue to rise if bond yields  reverse only slightly on their first move higher.  Meaning that I'm not sure a move from a 2% to 3% ten year bond yield kills the market's rally.  Bond math however tells me what this kind of move does to bonds.  Hint:  It's not good.   Remember, some version of this fate will likely happen to all bonds when yields begin to rise.

Link:  Zero Hedge.com:  Remember those Apple bonds.

*Long AAPL in certain client accounts and indirectly through various ETFs owned in client and personal accounts.