Build America Bonds: Who Wins the Muni Bonds Vs BAB Bonds Battle?

The fate of Build America Bonds is to be decided by the senate next week and all signs seem to indicate they are here to stay in 2011. However, despite the tremendous impact this economic stimulus experiment has had on the bond market, because muni bonds Vs BAB bonds appeal to different ends of the investing spectrum, the enthusiasm over these taxable bonds is hardly unanimous across the board.

BABs Likely to Stick Around

An overwhelmingly popular part of the Obama economic stimulus package, BABs sold like wildfire almost immediately upon implementation. It was therefore no surprise to see the senate pass a one year extension on BABs, an occurrence that is likely to be duplicated in the coming week; the bond market should continue to enjoy the presence of Build America Bonds for at least an additional year.

Assessing the Impact of BABs

There is simply no arguing the success BABs have brought to the municipal bonds table. For those not in the know, we offer some food for thought: On the subject of muni bonds Vs BAB bonds issuance, nearly a quarter of all muni bonds issued in the past year have been BABs.

With that being said, the highly popular program is not without its share of naysayers. Build America Bonds are taxable and are therefore more geared for institutional investors (insurance companies, pension funds, et al). Individual investors who have come to depend on the non-taxable income synonymous with traditional municipal bonds may not be too big on the Build America Bonds that have flooded the market and limited their tax exempt choices.

Ultimately, BABs are a triumph for issuers and institutional investors, serving as a much-needed shot in the arm for local governments looking to finance community projects. BABs have raised $125 billion dollars within the span of 1.5 years and facilitated the creation of many schools, roads, sidewalks, etc. Individual investors who seek exposure to BABs are encouraged to do so via exchange traded funds, the likes of which PIMCO has just recently introduced on the market. As always, we recommend exercising strong common sense and a willingness to research one's own municipal bond ratings with the proprietary BondView Summary Rating TM system, the most reliable and advanced of its kind on the web.