Build America Bond issuance hit $78 billion at the end of February according to the Treasury Department. BABs not comprise over 20% of the municipal bond market.
States and municipalities did $7.2 billion in Build America Bonds in February 2010, which is down from the highest month in October 2009, when $12.9 billion was done. Still, the ratio of BABs to all municipal bonds has remained in the 20-25% range.
Municipalities have turned to BABs because of the generous government subsidy. The Federal government currently pays 35% of the interest cost of a BAB. From an individual investors standpoint, Build America Bonds are significant mainly because they are crowding out tax-exempt bonds as discussed in this Build America Bond interview with Tom Doe from Municipal Market Advisors.
President Obama is now discussing making Build America Bonds a permanent fixture in municipal finance. The new proposal would lower subsidy rates to 28% and broaden the uses for BABs.
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Tom Doe from MMA Discussed the Build America Bond Program
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