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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Put The USA In Your IRA |
Forbes.com, 05.13.09,
The new high-yielding Build America taxable munis are perfect for your IRA.
In the 2009 Stimulus Act, there is a particularly nice gift for municipal borrowers and municipal bond investors alike: Build America Bonds.
Nicknamed "BAB," these are taxable municipal bonds. States and municipalities like them because the federal government reimburses 35% of the interest cost when they borrow for essential public purposes like schools, infrastructure and transportation.
It's a boon for investors. Where else can you get a high-quality, taxable, non-callable single-A rated to triple-A rated investment paying as much as 7.50%? Short answer: You can't.
Compare that yield on the long maturity bonds (2034) of the recently issued $6.3 billion State of California General Obligation "Build America Bonds." Rated A2/A, California's BAB issue averaged 100 basis points more in yield than similar bonds by AT&T ( T - news - people ) (A2/A), Wal-Mart ( WMT - news - people ) (Aa2/AA), and Conoco-Philips (A1/A). Those are fine companies, but the state of California backs their bonds with the full-faith and credit (to say nothing of the taxing power) of arguably the largest and most diverse state economy in the nation--even in these tough times. For those worried about California's credit worthiness, keep in mind that the BAB bonds are yielding more than 300 basis points over the similar maturity Treasury bonds. That's a generous risk premium.
But if the "taxable" part of these municipal bonds is giving you pause, consider putting these bonds in your IRA or other retirement plan. It's great for your IRA because not only is the coupon interest tax-deferred until you are likely in a lower tax bracket, but also it can be reinvested, meaning it can compound. Plus you get your principal back at maturity. Invest $100,000 in that 25-year California BAB and you have $287,500 when the bonds mature. Compound your returns at even just 3% and that number jumps to nearly $375,000.
Moreover, some of these non-callable bonds are coming at shorter maturities, so should you be one of the fortunate few still able to plan for a specific retirement date, look for a bond maturing close to that time.
California was the largest borrower to date to offer these bonds. Other borrowers are taking advantage too, such as the University of Virginia ($250 mm--Aaa/AAA, 6.20% due 2039), the New York Metropolitan Transportation Authority ($750 mm--NR/AA, 7.33% due 2039), the New Jersey Turnpike Authority ($1,375 mm--A3/A, 7.414% due 2040) and the Illinois State Toll Road Authority (500 mm-Aa/AA-,6.18% due in 2034).
Additionally there has been smaller BAB issuance for local school districts in Kansas and Michigan.
Keep in mind, these are new bonds and a new marketplace, so there are still some kinks to be worked out before price levels and yields stabilize. Investor enthusiasm for the initial bonds quickly pushed prices up, nearly 8% in some instances. That's unlikely to persist; as more bonds come from different borrowers and different credit classes, relative yields are likely to remain attractive.
And there is more BAB issuance in the pipeline as municipal borrowers across all sectors and credit classes realize the benefits of issuing taxable bonds with a federal subsidy. The legislation also allow sfor BAB issuance where the bond purchaser gets a tax credit equal to 35% of the total coupon interest payable. Bonds using the tax credit option haven't come to market yet. Some market observers think total BAB issuance may top $100 billion.
The Buy America Bonds program closes at the end of 2010. Get 'em while they last.
Barnet Sherman is managing partner of Braintree Capital Partners an asset management firm specializing in tax-exempt securities. He can be reached at
www.braintreecapital.com
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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