Investment Grade Bonds vs. NNN Real Estate: The Spread Advantage

The Bond-to-NNN Spread Explained

A corporate bondholder receives contractual interest backed by the issuer’s general credit. A net lease landlord receives contractual rent from the tenant entity named in the lease and keeps the real estate if the tenant leaves. The two trade in different markets. Bonds trade in a deep dealer market with daily pricing. Net lease properties trade one at a time, with transaction costs, financing contingencies, and a buyer who also takes on location, building, and re‑leasing risk. The bond-to-NNN spread is the difference between what the real estate market asks for the lease and what the bond market pays for the credit.

Two features of the lease matter most when comparing it with a bond. First, the obligor: many national tenants sign leases through an operating subsidiary or a franchisee, so the corporate rating applies only if the rated company signs or guarantees the lease. Second, bankruptcy treatment: a bondholder claims principal and accrued interest, while a landlord whose lease is rejected has a damages claim generally capped at the rent reserved for the greater of one year or 15 percent, not to exceed three years, of the remaining lease term (11 U.S.C. 502(b)(6)), plus unpaid rent, and recovers the building. For the broader framework, see Investment Grade Thinking; for the rating scale itself, see the investment grade guide.

Master Comparison Table: Bond Index Yield vs. Median NNN Asking Cap Rate by Tenant

The table compares each tenant’s rating-category bond index yield with the median asking cap rate on that tenant’s active listings. One calculation applies to every row: spread equals the median asking cap rate minus the index yield. Each tenant appears once. Investment grade tenants (BBB‑ or Baa3 and higher) are listed first by rating category; shaded rows are below investment grade and are included for comparison. FRED publishes the index yields for business days; the table uses the latest observation loaded to the site, and the note below the table gives its date. Listing medians are calculated from the active listings we track, which are refreshed on a weekly schedule. Spreads are calculated from unrounded medians, so a spread can differ by one basis point from the difference between the rounded figures shown.

Showing 50 tenants. Index yield is the ICE BofA effective yield index for the tenant’s rating category (US Corporate AAA, AA, A or BBB index; US High Yield BB, single-B or CCC and lower index), using the S&P rating, or the Moody’s equivalent where S&P does not rate, from the Federal Reserve Bank of St. Louis (FRED), as of October 1, 2026. It is an index average, not a quote on the company’s own bonds. Median asking cap rate is the median of asking cap rates (stated, or computed from stated income and price when no rate is stated) on active listings InvestmentGrade.com tracks, listings last observed October 12, 2026; asking cap rates are not closed-sale cap rates. Spread is the median asking cap rate minus the index yield. Ratings are the agency ratings in our ratings database for the entity shown; the rating type (for example issuer, senior unsecured debt, long-term debt or revenue bond ratings) varies by company. The entity that signs or guarantees a given lease can differ, so confirm the lease obligor. Shaded rows are below investment grade. NR means the agency does not rate the entity; n/a means no verified rating is on file. Not shown because fewer than 5 active listings with a published cap rate were observed: Amazon, Costco, Citizens Bank, Lowe's, Quest Diagnostics, Burlington. Not shown because there is no verified public agency rating: T.J. Maxx, Casey's General Stores, Labcorp, Arby's, Dunkin', Walgreens, Chipotle, Chick-fil-A.

How to Read the Spread

Tax Differences Between Bond Interest and NNN Rent

Interest on a taxable corporate bond is ordinary income, which individual investors using the cash method generally report in the year they receive it (IRS Publication 550). Net lease rent is also ordinary income, but the owner of the real estate has deductions and deferral options that a bondholder does not. Both are generally subject to the 3.8 percent net investment income tax for higher earners unless an exception applies (IRC 1411).

1. Depreciation. The owner of the building can generally recover qualifying nonresidential building basis, but not land, over 39 years on a straight-line basis under the general depreciation system, using a mid-month convention in the year the building is placed in service and the year it is sold (IRC 168; IRS Publication 946). For a $2 million property with $1.5 million allocated to the building, a full year of deductions is about $38,462; the first and last years are smaller. A cost segregation study can reclassify eligible components out of the building basis into 5-, 7- and 15-year classes, so they are not depreciated twice, and those components may qualify for 100 percent bonus depreciation if they are qualified property acquired and placed in service after January 19, 2025, subject to exceptions and elections (IRC 168(k), as amended by Pub. L. 119-21, section 70301; IRS Publication 946). Rental losses are generally passive and generally offset only passive income (IRC 469). On a taxable sale, gain attributable to straight-line depreciation on the building is generally unrecaptured section 1250 gain taxed at up to 25 percent (IRC 1(h)), and gain on section 1245 property, which can include cost-segregated components, is generally ordinary income up to the depreciation taken (IRC 1245); the amounts depend on how each asset is classified, the depreciation taken and the gain recognized. An investor who owns only the land under a ground lease has nothing to depreciate. See the cost segregation guide.
2. 1031 exchange. Real property held for use in a business or for investment can be exchanged for like-kind real property held for either use, with gain deferred to the extent the exchange qualifies (IRC 1031(a)(1)). Cash or other non-like-kind property received is taxable boot up to the gain (IRC 1031(b)), and debt relief is treated as money received unless it is offset by debt taken on or cash added (IRS Publication 544), so deferring the full gain generally means reinvesting the net proceeds and replacing any debt paid off with new debt or added cash. A partial exchange can still defer part of the gain. Depreciation recapture is generally deferred as well, but it can still apply in some exchanges (IRC 1245(b)(4), 1250(d)(4)). Bonds do not qualify for like-kind exchange treatment: since 2018 only real property qualifies (IRC 1031(a)(1)), and stocks, bonds and notes were excluded before that as well; selling one triggers gain or loss. A 1031 exchange defers tax; it does not eliminate it. See the investment grade 1031 exchange guide.
3. Land and residual value. The land under a net lease property can rise or fall in value with the local market, and the owner keeps the property when the lease ends. A bond held to maturity returns its face value absent default, and its market price moves with interest rates and credit spreads before then.
4. Step-up in basis at death. Both inherited real estate and inherited bonds generally take a basis equal to fair market value at the date of death (IRC 1014(a)). The difference is what the step-up erases. For a long-held NNN property, it can eliminate gain built up through depreciation and prior 1031 exchanges, which can be large. A bond usually carries little built-in gain, and interest accrued but unpaid at death is income in respect of a decedent that does not receive a step-up (IRC 691, 1014(c)).

General information, not tax advice. Confirm treatment with a CPA before acting.

Patterns in the Table

• Bank branches: branch listings for highly rated banks often ask cap rates below the A and AA index yields. Current spreads: JPMorgan Chase −80 bps, PNC −77 bps, Fifth Third −122 bps, Bank of America −59 bps. Many branch listings are ground leases.
• Big box and warehouse retail: Walmart −68 bps and Target −52 bps. Costco and Lowe’s appear on the table only when each has at least five active listings with a published cap rate; the note under the table names any tenant left out under that threshold.
• Auto parts: AutoZone −84 bps, O’Reilly −19 bps, NAPA (Genuine Parts) +56 bps. NAPA stores are often leased to independent owners rather than Genuine Parts Company, so confirm the obligor.
• Pharmacy and health care: CVS +31 bps and DaVita −28 bps. Walgreens has no verified public agency rating on file and is not shown.
• Convenience stores: 7-Eleven −69 bps and Circle K −108 bps.

Why This Matters for 1031 Exchange Buyers

Exchange buyers work against fixed deadlines: 45 days from the sale to identify replacement property and 180 days, or the due date of that year’s tax return including extensions if earlier, to close (IRC 1031(a)(3)). The table helps narrow which tenant credits to pursue by showing what the real estate market is asking relative to the bond market’s price for each rating category. A positive spread means the median asking cap rate is above the index effective yield and a negative spread means it is below; neither is a direct measure of cash income, and a negative spread can reflect pricing for location, land value, or lease structure. Either can fit an exchange, depending on whether the goal is current income or long-term value. Confirm the lease obligor, remaining term, and rent increases before identifying a property.

For Property Owners: What the Spread Means for Your Refinance

Sector Deep Dives

Each sector page covers the investment grade issuers in a sector, their ratings, and the net lease tenants where the same company stands behind both bonds and leases. All nine sector pages are live.

• Healthcare Bonds: pharmacy, dialysis, labs and hospital operators
• Consumer Discretionary Bonds: home improvement, restaurants, auto parts and specialty retail
• Consumer Staples Bonds: grocery, discount, warehouse clubs and convenience
• Utility Bonds
• Telecom Bonds
• Energy Bonds
• Industrial Bonds
• Bank Bonds
• REIT Bonds

Featured Deep-Dive Analyses

Nineteen tenants have dedicated bond-to-NNN pages. Each compares the company’s bond pricing, taken either from a recently priced note in its SEC filings or from the ICE BofA index for its rating category, with net lease cap rates, lease structure, and obligor considerations for that tenant.

• JPMorgan Chase Bonds vs. NNN: Bank Branch Spread Analysis
• Walmart Bonds vs. NNN: Big Box and Ground Lease Spread
• Home Depot Bonds vs. NNN: Home Improvement Spread
• Costco Bonds vs. NNN: Warehouse Club Spread
• Lowe’s Bonds vs. NNN: Home Improvement Spread
• McDonald’s Bonds vs. NNN: QSR Ground Lease Spread
• Starbucks Bonds vs. NNN: Drive-Thru Coffee Spread
• Dollar General Bonds vs. NNN: Dollar Store Spread
• Dollar Tree Bonds vs. NNN: Dollar Store Spread
• CVS Health Bonds vs. NNN: Pharmacy Spread
• AutoZone Bonds vs. NNN: Auto Parts Spread
• O’Reilly Auto Parts Bonds vs. NNN: Auto Parts Spread
• Genuine Parts (NAPA) Bonds vs. NNN: Auto Parts Spread
• FedEx Bonds vs. NNN: Logistics Spread
• Kroger Bonds vs. NNN: Grocery Spread
• Tractor Supply Bonds vs. NNN: Rural Retail Spread
• Best Buy Bonds vs. NNN: Electronics Retail Spread
• Sherwin-Williams Bonds vs. NNN: Paint Store Spread
• T-Mobile Bonds vs. NNN: Wireless Retail Spread

Frequently Asked Questions

Methodology and Data Sources

Bond yields: ICE BofA effective yield indexes by rating category (US Corporate AAA, AA, A and BBB; US High Yield BB and single-B), published by the Federal Reserve Bank of St. Louis (FRED) for each business day; the table uses the latest observation loaded, dated in the table note. An index yield is an average across many bonds and maturities; a specific company’s bonds can yield more or less. NNN cap rates: median asking cap rate across active listings InvestmentGrade.com tracks for each tenant, excluding listings under contract, closed, or priced below $150,000; tenants with fewer than five listings with a published cap rate are not shown. Asking cap rates are not closed-sale cap rates. Credit ratings: S&P Global Ratings, Moody’s and Fitch Ratings rating actions and issuer filings, maintained in our ratings database; each tenant’s credit page shows the source and the date the rating was checked. Spread: median asking cap rate minus index yield, in basis points. This page is maintained by InvestmentGrade.com, a commercial real estate brokerage specializing in net lease and investment grade real estate.