AAPL Apple Inc

By Sam Goldfarb 

Technology stocks fell again Monday, but the sector has fared relatively well recently in the bond market -- a signal that there has been more concern about the growth prospects of tech companies than their fundamental credit quality.

The extra yield, or spread, that investors demand to hold investment-grade tech bonds has increased 0.17 percentage point to 0.88 percentage point from its recent low on Feb. 2, according to Bloomberg Barclays data. During that time, the spread on investment-grade corporate bonds over U.S. Treasurys has climbed 0.24 percentage point to 1.09 percentage point.

By contrast, the S&P 500 information technology sector has fallen roughly 6% over the past month -- a larger drop than the 4.5% decline of the overall S&P 500. After powering stock indexes to records earlier this year, tech stocks have come under pressure in recent weeks due partly to data-privacy concerns and increased scrutiny from regulators and lawmakers.

Prices on tech bonds, for their part, have also fallen but only modestly and, analysts say, largely for the simple reason that benchmark interest-rates are rising.

FAANG companies -- Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. -- tell the same story.

While Facebook doesn't have bonds, the spread on Amazon's 3.15% notes due 2027 has increased by 0.20 percentage point since Feb. 2 to 0.85 percentage point, according to MarketAxess. Apple's 3% bonds due 2027 have widened by 0.17 percentage point to 0.76 percentage point. And Alphabet's 1.998% bond due 2026 has climbed 0.15 percentage point to 0.50 percentage point.

As a junk-rated firm, Netflix is in a different category. But it has also performed better than its peers. While the average high-yield bond spread has increased 0.43 percentage point since its recent low on Jan 26, the spread on Netflix's 5.875% notes due 2025 has climbed just 0.35 percentage point to 2.3 percentage points.

The relative strength of technology bonds can be tied to two major factors, said Jordan Chalfin, a senior analyst at the research firm CreditSights.

"There's a lot of headline risk, mostly regulatory, that I think could have implications for the upside on equities, but I don't think anyone is questioning the sustainability of these businesses," he said.

In addition, the recently passed tax overhaul has made it easier for technology companies to repatriate foreign earnings, meaning they no longer need to issue debt to fund shareholder-return programs. A reduced supply of technology bonds should bolster prices, Mr. Chalfin said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

April 02, 2018 14:24 ET (18:24 GMT)

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