|
|
|
|
| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
|
|
| Bonds Online |
|
|
| 5/10/2013Market Performance |
| Municipal Bonds |
|---|
|
S&P National Bond Index
|
3.00% |
|
|
S&P California Bond Index
|
2.96% |
|
|
S&P New York Bond Index
|
3.13% |
|
|
S&P National 0-5 Year Municipal Bond Index
|
0.70% |
|
|
| S&P/BGCantor US Treasury Bond |
400.09 |
|
| More |
|
| Income Equities: |
|---|
| Preferred Stocks |
|---|
|
S&P U.S. Preferred Stock Index
|
848.03 |
|
|
S&P U.S. Preferred Stock Index (CAD)
|
636.26 |
|
|
S&P U.S. Preferred Stock Index (TR)
|
1,701.05 |
|
|
S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
|
|
| REITs |
|---|
|
S&P REIT Index
|
174.07 |
|
|
S&P REIT Index (TR)
|
425.30 |
|
|
| MLPs |
|---|
|
S&P MLP Index
|
2,469.58 |
|
|
S&P MLP Index (TR)
|
5,428.50 |
|
|
See Data
|
|
|
|
 |
|
|
|
|
|
|
Buy America Bonds a unique opportunity |
by Sharon L. Thornton, senior director of investments for Karpus Investment Management in Pittsford, Guest Commentary
Build America Bonds, or BABs, are federally subsidized, taxable municipal bonds authorized under the American Recovery and Reinvestment Act.
Essentially, they function to help state and local governments finance capital projects, stimulate the economy and create jobs.
From the time the program began in April 2009 through the end of last year, U.S. Treasury data show that nearly 800 municipal bonds were issued. Overall, the bonds total more than $65 billion and make up about 22 percent of the municipal bond market.
The concept of creating a federally subsidized, taxable municipal bonds program is a revival of the taxable bond option debated by economists and public finance professionals in the 1970s and 1980s. In doing so, the argument is that instead of exempting municipal bond interest from income taxes — favoring high-income investors at the top marginal rates — it may prove more efficient for the Treasury to simply write a check to the investors or to the municipalities and states that issue the bonds. The basic premise is that a direct federal subsidy at a percentage less than the investor’s average marginal tax rate would cost the federal government less than the indirect subsidy allowed under tax-exempt municipal bond interest.
In terms of how BABs are issued, there are two basic varieties. Most commonly, the issuer receives a subsidy from the federal government of 35 percent of the interest paid to investors for purchasing the bonds. Doing so allows municipalities to be competitive with interest rates paid by corporate issuers.
For example, if a state pays 6.5 percent on a bond issue, the state is responsible for paying slightly less than 4.25 percent of the interest payable and the federal government makes up the difference. This variety is very popular with entities that pay no income taxes — such as pension funds and foreign investors — as well as investors seeking high rates of interest income.
With the second variety of BABs, the holder is allowed to receive a tax credit equal to 35 percent of the interest on the bond each year. If the bond holder’s tax liability is insufficient to offset the credit, it can be carried forward for future years.
Although BABs were only slated to be issued in 2009 and 2010, President Obama already has proposed extending the program. Market acceptance of a taxable municipal bond, along with the possibility of increased income tax revenue for the federal government, provide further indication the program likely will continue.
For investors overall, yields on BABs are quite tempting. In fact, the first 100 BABs had an average yield of 5.67 percent, comparing favorably with corporate issues. The historically lower default rate of municipal bonds in comparison to corporate bonds also means investors are taking less credit risk. Higher interest rates coupled with less credit risk has resulted with most of the new issues being purchased by institutional investors.
Smaller investors may participate through the purchase of mutual funds, closed-end funds or exchange traded funds. If you have any questions about BABS, and especially if that question involves whether they fit with your investment guidelines, don’t hesitate to contact an investment professional for advice.
Sharon L. Thornton is senior director of investments for Karpus Investment Management in Pittsford, N.Y.
|
|
|
|
|
|
| Partner Market Place |
|
|
|
| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
|
|
| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
Keep up with monthly, in-depth coverage of fixed income market strategies, commentary, and insights as seen by our sources. Sign up for the free BondsOnline Advisor now!
Unsubscribe here [+] |
|
|
|
|
|
|
|
|
