TY - JOUR T1 - Build America Bonds JF - The Journal of Fixed Income SP - 67 LP - 73 DO - 10.3905/jfi.2010.20.1.067 VL - 20 IS - 1 AU - Andrew Ang AU - Vineer Bhansali AU - Yuhang Xing Y1 - 2010/06/30 UR - https://pm-research.com/content/20/1/67.abstract N2 - Build America Bonds (BABs) are a new form of municipal financing introduced in 2009. Investors in BAB municipal bonds receive interest payments that are taxable, but issuers receive a subsidy from the U.S. Treasury. The BAB program has succeeded in lowering the cost of funding for state and local governments with BAB issuers obtaining finance 54 basis points lower, on average, compared to issuing regular municipal bonds. For institutional investors, BAB issue yields are 116 bps higher than comparable Treasuries and 88 bps higher than comparable highly rated corporate bonds. For individual investors, BABs represent poor deals compared to regular municipal bonds. Thus, on average the Federal government subsidy disadvantages individual U.S. taxpayers, who are the main holders of municipal bonds, and benefits new entrants in the municipal bond market.TOPICS: Fixed-income portfolio management, fixed income and structured finance, other real assets ER -