Johnson & Johnson (NYSE: JNJ) recently broke a new record -- but it wasn't for the strongest Tylenol in history. J&J has now posted the lowest yields ever on a corporate 10-year and 30-year bond -- 2.95% and 4.50% respectively. For comparison's sake, that's 21 and 56 basis points more than comparable Treasury bonds.

This might be just an extraneous data point, not representative of corporate bonds as a whole. But a host of other companies -- not all necessarily even AA-rated -- have also recently issued bonds at absurdly low yields:

Stock

Rating

Term

Yield

Comparable Treasury Yield

Yield spread (in basis points)

Johnson & Johnson

AAA

10-year

3.15%

2.74%

41

 

AAA

30-year

4.63%

3.94%

69

McDonald's (NYSE: MCD)

A

10-year

3.50%

2.94%

56

   

30-year

4.875%

3.98%

89.5

International Business Machines (NYSE: IBM)

A+

3-year

1.00%

0.85%

15

Wal-Mart (NYSE: WMT)

AA

5-year

2.25%

1.82%

43

   

10-year

3.625%

3.00%

62.5

   

30-year

4.875%

3.94%

93.5

Campbell Soup (NYSE: CPB)

A

7-year

3.1%

2.45%

65

What's craziest about these yields? Their comparable Treasuries sold at higher yields only a few weeks ago -- in some cases, a few days ago. Did something change in the last few weeks to make Johnson & Johnson as safe an investment now as the United States government was two weeks ago? Doubtful.

The U.S. government issues bonds in its own currency, and even if it has to trigger Zimbabwe-esque inflation, it can always print money or raise taxes to meet payments. J&J doesn't have that luxury. If it should suffer through another unforeseen scandal on the magnitude of the 1982 Tylenol scare, its bond investors will have quite the headache.

Perhaps, in this brave new world that has such bailouts in it, one could argue that any big, well-rated company is somehow implicitly backstopped by the taxpayer, and thus just as risk-free as a Treasury. But really, will anyone honestly tell me that Campbell Soup is too big to fail?

Here's the real truth: The lower yields go, the more a single basis point matters. If Treasury yields all go to zero, a AAA-rated corporate bond with a 0.05% yield will start to look attractive. But those of you who don't see a 0% long bond scenario anytime soon might want to start thinking instead about what companies can do with all this near-free cash, and what record-low yields mean for equity risk premiums. The spread between earnings yields and bond yields is getting stretched like a piece of elastic. You can guess who wins and who loses when it finally snaps back.

Really explore the space with further Foolishness:

Fool contributor Jacob Roche is pretty proud of his own excellent credit rating. He owns calls on Johnson and Johnson. He also serves Motley Fool Options as a Community Fool. Johnson & Johnson is an Income Investor and Motley Fool Options recommendation, and Wal-Mart and Campbell Soup are Inside Value recommendations. The Motley Fool's disclosure policy has a quadruple-A rating.