Build America Bonds - Individual Investment Opportunity?

BestCashCow's Lynne Ashminov interviews Tom Doe from Municipal Market Advisors on Build America Bonds. What are they and do they present an opportunity for the individual investor?

BestCashCow's Lynne Ashminov interviews Tom Doe from Municipal Market Advisors on Build America Bonds. What are they and do they present an opportunity for the individual investor?

Below is a short recap of the video.

What Are Build America Bonds?

Build America Bonds are  taxable bonds issued by states and municipalities to support capital projects that create jobs. The Federal government provides a subsidy of 35%.

Are They For Individual Investors?

BABs are more attractive to institutional investors including insurance companies, endowments, and pension funds. They are mostly long term (30 years), most have solid credit ratings, and they currently yield around 6%. 

If individuals want to invest in them, there is a Build America Bond ETF and Eaton Vance has a BAB mutual fund.

Real Impact of Build America Bonds to Individual Investors

There biggest impact to individual investors is that Build America Bonds are replacing tax-exempt financing. Last year there were 5% less tax-exempt bonds. This has helped to suppress tax-exempt yields.

There's also talk in Washington about using BABs as a first step in doing away with tax-exempt bonds. They may prove to be the impetus to eliminate tax-exempt financing altogether.

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