No, Apple Didn't Just Prove The Existence Of The ZLB
All day I've been having that "Someone is wrong on the internet" feeling because of this Felix Salmon column titled 'Apple just proved that the zero lower bound still exists.'
First, a quick definitional thing. The concept of the Zero Lower Bound is essentially that central banks can't push interest rates below (or too far below) zero because if they do, then people will just take their money out of banks, and hold their money in cash (under the proverbial mattress) where they'll earn 0% on their savings, which would be better than the negative rates they get in a bank.
There's been a lot of talk about the ZLB in recent years, because central banks have cut interest rates to essentially zero, and yet growth and inflation have remained relatively muted, so theoretically it'd be good if they could cut more. Central Banks have responded to hitting the ZLB by engaging in unconventional monetary policies (like QE). All that being said, in recent months we HAVE seen central banks cut below 0% (Denmark and Switzerland now have sub-zero policy rates, in an attempt to discourage massive cash inflows).
So what's this got to do with Apple? Well! Apple has more cash than god, and yet it still borrows money from time to time because money is just so damn cheap. And it recent borrowed money in the Swiss franc market, where money is REALLY cheap.
And it didn't borrow at a negative rates, and so Felix concludes that no company could borrow at negative rates.
This bolded block is Felix (sorry, I don't know how to block-quote here)
Apple borrowed 1.25 billion Swiss francs this week, by issuing two different bonds — but one of them was an eight-year bond with a yield of 0.281%, while the other is a 15-year bond with a yield of 0.74%. The yields on both bonds are very, very low — but the yield on neither bond was actually negative. Similarly, recent Swiss bond issues from healthcare company Novartis and utility Swissgrid have also come at relatively long maturities and marginally positive yields.
There’s a pattern here: companies are pushing out the maturity of their new bonds until the yield becomes positive, and then they issue. Yields generally go up as the tenor of a bond increases — and rather than attempting to issue a short-dated bond (like Nestlé’s 2016 issue) at a negative rate, the companies instead do something much more normal, which is issue a longer-dated bond at a positive rate.
Being able to issue debt at a negative interest rate would be a massive PR coup for any company which did it, so I suspect that the reason these companies don’t do it is that they can’t do it. Bond investors might trade bonds between each other at such rates, but they’re not going to subscribe to a brand-new bond issue with a minus sign in front of the yield. This is the zero lower bound in action: it’s a weirdly important barrier. Financially speaking, the difference between a 0.1% yield and a -0.1% yield is exactly the same as the difference between a 1.9% yield and a 2.1% yield. But psychologically speaking, it’s a very tough nut indeed.
The idea that this "proves" the existence of the ZLB is just strange. If you assume, as many people do, that interest rates these days are unsustainably low, it makes a lot of sense to lock in those low rates for 8-15 years, rather than just borrow negative at 2 years for the PR or for the lolz at a negative rate. All that's happened here is that the company, rationally, decided to borrow further out in the curve.
The way to PROVE that there was some 0% yield barrier for companies issuing corporate debt would be to find an example of a company borrowing an inexplicably high spread over the equivalent maturity government bond, with the implication being that corporate spreads were higher than normal when a normal spread would mean negative borrowing. That hasn't been shown here, at least not in Felix's post, and so the post doesn't live up to the title. Ergo it's clickbait.