Tax Changes Force Cash-Hoarding Companies to Sell Bonds


Cash-rich companies that had been some of the biggest buyers of corporate bonds have started selling their holdings after tax law changes, according to Bank of America Corp. strategists.

Companies like Apple Inc. reduced their corporate bond portfolios by more than 10 percent to $306.4 billion in the three months ended March 31, the lowest level in more than a year, after buying around $10 billion of the bonds on average every quarter. About half of that decline came from selling, and the other half from securities maturing, strategists led by Hans Mikkelsen wrote. The strategists looked at 20 of the companies with the largest corporate debt holdings.


Bye-Bye, Bonds

Corporate cash hoarders reduced their corporate bond holdings by 10% Q/Q

Source: Company filings from AAPL, MSFT, GOOGL. GE, ORCL, AMGN, QCOM, GILD, AMZN, KO, MRK, PEP, PG, JNJ, DWDP, INTC, CELG, BMY, CAT, LRCX, BofA Merrill Lynch Global Research

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It’s the beginning of the end of an era for the cash-rich U.S. companies: they are likely to no longer be the biggest corporate debt buyers, after changing U.S. tax laws reduced their incentive to keep cash overseas. Previously, companies with extensive profit earned overseas, often in the technology or pharmaceutical industries, would keep that money abroad to avoid U.S. taxes, while simultaneously borrowing in the U.S. to fund capital expenditure, share buybacks, or whatever else they need money for.

The companies would often invest their overseas money– which was estimated late last year to be around $3.1 trillion– in short-term U.S. corporate debt and other securities. Now there’s no benefit to keeping money overseas, and companies can just move foreign profit back to the U.S. They no longer need to be both big buyers and big sellers of corporate debt.


Apple’s holdings of company debt shrank in the latest quarter for the first time since 2013. Companies’ investments in corporate debt fell faster than their overall portfolios, which declined 7.9 percent to $919.9 billion, the Bank of America strategists wrote.

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