With So Much Cash, Why Is Google Selling Bonds?

May 17, 2011 3:11 pm

From the WSJ today:

“Google Inc. sits on $37 billion in cash. But Monday it sold its first bonds, some $3 billion worth, to take advantage of corporate interest rates that are moving swiftly lower.

Tech companies have typically avoided debt offerings, choosing to fund operations from cash. But Monday’s deal was simply too good to miss, said David Trahan, a banker at Citigroup who helped lead the deal. “Everyone thinks that before too long, rates will go up.”

And we spotted this, a solid point against Google’s move:

“The chart above shows the spread between the ten-year Treasury bond and the three-month Treasury bill. The yield spread is now high by historical standards. The empirical literature on the expectations theory of the term structure (in which I have sometimes played) suggests that this is a good time to borrow short and lend long–the opposite of what Google is doing.”

Source: Greg Mankiw

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