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| 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. |
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| Bonds Online |
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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
|
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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Four Attractive, Unique CEFs for Income Potential |
MORNINGSTAR - Oct. 14, 2011 - By Steven Pikelny
We take a look at Build America Bond closed-end funds.
The last few months have presented investors with many obstacles. The European sovereign debt crisis, coupled with worsening macroeconomic figures, paints a bleak outlook for future investment returns. Some investors have responded by "fleeing" to the perceived safety of U.S. Treasuries despite the recent downgrade. But Treasuries have seen yields continually pushed to new lows, as have municipal bonds now that widespread, media-fueled panic over massive defaults seems to have abated. Municipal-bond yields have been pushed so low, in fact, that many districts are taking advantage of this by refinancing debt.
About the Author Steven Pikelny is a closed-end fund analyst at Morningstar.Contact Author | Meet other investing specialists
Income-hungry investors are in a seemingly tough spot--forced to choose between depressingly low yields and taking on higher risk in search of yields. But these are not the only options. A unique subcategory of municipal closed-end funds, or CEFs, invests in Build America Bonds, or BAB, and includes just four funds. Because these funds tend to employ less leverage and hold portfolios with higher-credit quality compared to their tax-free municipal counterparts, they offer investors a viable, attractive option to get out of the tight spot they are in.
What Are Build America Bonds?
Let’s take a step back first. Build America Bonds were created under the American Recovery and Reinvestment Act of 2009. Unlike traditional municipal-bond income (interest payments to bondholders), the income from BABs is not exempt from federal or state taxes. Instead, the U.S. Treasury subsidizes 35% of the bond’s coupon payments, allowing municipalities to pay higher interest payments to attract investors. The initial program, which ended at the close of 2010, created a $181 billion market for these bonds. As it became apparent that the program would not continue, many municipalities rushed to take advantage of the federal subsidies, and almost one
quarter of the outstanding notional value of this bond category was issued in the final three months of 2010.
But while these may look and smell like traditional tax-free municipal bonds, BABs comprise a separate asset class with their own set of risks. Because the program was not renewed after 2010, the BAB market’s future remains unclear. There is currently no new supply of these bonds. The Obama administration's fiscal 2012 budget outlines the expansion of the program with a reduced 28% subsidy, but it faces political opposition. If the program is not resurrected, the market could become even more illiquid, making it difficult for funds to maintain a BAB-oriented strategy. On top of this, these bonds face a slew of other risks related to the subsidy, ranging from its possible elimination by Congress to an unfavorable IRS audit. (The IRS can disallow some of the subsidy if it determines that the price of the bonds, when initially sold to investors, was based on an incorrect audit). In light of this uncertainty, higher yields may be justified.
For the complete article.
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