A couple of weeks ago, I highlighted the absurdity of large, high-quality companies paying higher dividend yields than yield to maturities of their bonds.

This evening, I scanned through the components of the Russell Utilities Index and found nearly 40 companies with dividend yields greater than the yield-to-maturities on their bonds. 

In this chart, the bonds expire in eight to twelve years.

For utilities, a dividend yield of 4%-5% is about right, given that they are low growth, highly-regulated entities.  Thus, the stocks of these utilities appear fairly valued, at least at first glance.

However, given that utilities are highly-regulated entities, it means that the dividends of most utilities are very safe.  Given that the dividends are very safe, it makes no sense to buy the bonds of these same utilities, which are yielding 1.1% less than the stocks.

This discrepancy is almost certainly because of the stampede into fixed income products by retail investors who have been scared out of the stock market and are now searching for yield, which is becoming almost non-existent in government bonds, thanks to the Fed's zero interest rate policy and quantitative easing.

It will end badly.