image from lightandlife.org Giffen Goods -- when the rules of supply and demand go awry. When the price goes up, consumers buy MORE instead of less. The name comes from the individual who identified the aberration--a 19th century Scottish statistician/economist named Robert Giffen. The iconic example of this phenomenon was the consumption of potatoes in Ireland by the poor. When potato prices went down, the peasants could afford to buy meat as well as potatoes...so they consumed fewer potatoes. When potato prices were high, the poor in Ireland could not afford to buy meat, so they had to buy the more expensive (but still cheaper than meat) potatoes--so they bought more potatoes. "Supply and demand" usually predicts that prices decrease when demand is low, and prices increase when demand is high relative to supply. Here is what happened with Apple : Last year, they issued $17 billion in bonds. A bond issue in lieu of the issuance of additional stock means that current stock value is not diluted and the the return on stockholders' equity is improved, so this is a popular move with stockholders. Anyway, when they announced last week that they would be issuing $13 billion in new bonds, the price of the old bonds on the secondary market dipped a little, which would be the expected result according to supply and demand. But when they actually went on sale, the price was HIGHER than it had been before the additional bonds became available. Go figure. Because bond investors tend to be the same people that invest in packaged mortgage bundles, analysts are looking to that market to make sense of this development. What those analysts are seeing is that mortgage lending is getting "looser" again, so the bundled mortgages are becoming more risky. This pushes the return rate higher. So...lower quality or longer term investments (Apple's bonds are 30 year) become more appealing to investors. One analyst, Martin Fridson , writing for S&P Capital IQ LCD , predicted that these low-quality investments will begin pushing up the default rate in 2016--and the defaults will continue until 2020. “ During that period, we project that on a global basis, approximately 700 bond issuers and 1,150 debt issuers in total will default. The face amount of bonds and loans going into default should approximate $1.5 trillion, with the U.S. accounting for $1 trillion of the total .” This doesn't say anything about what will happen specifically with the Apple bonds, but since Apple's solvency and liquidity is very good, this dire prediction is unlikely to affect the Apple bondholders. Source: " Searching for Yield, At Almost Any Price , " by Floyd Norris, the New York Times , May 2, 2014. F ollow up: Look up the bond issue on the internet. What is the interest rate being paid on the old bonds? What is the interest rate on the new bonds? Can you think of any financial reason--market driven--for the popularity of these bonds? Hint: check out the rate your local banks are paying on their Certificates of Deposit. If you bought Apple's bonds last year, and sold them this week, the author of the NYT article notes that you would experience a net loss. Why is this?