House Approves Extending Build America Bond Program Through 2013

The U.S. House of Representatives voted today to extend the Build America Bond program through 2013. The program has proven popular with municipalities because of the 35% subsidy provided by the Federal government. The bonds have also proven to be popular investments with institutional investors and sovereign wealth funds, and foreign investors.

The House version of the bill would reduce the subsidy to 31 percent in 2012, and 30 percent in 2013.

For investors who like tax-exempt bonds, this is not necessarily good news. Build America Bonds now comprise over 20% of the municipal bond market. The Federal government has long looked for a way to phase out the tax-exempt status of municipal bonds and this may be the way. Provide states with an intitial subsidy, hook them on the BABs, then slowly reduce the subsidy. At the same time, let the subsidized bonds eat the tax-exempt market alive.

The video below provides some additional information on Build America Bonds and whether they are appropriate for individual investors.

Related Video:

Build America Bonds - Investment Opportunity?

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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