| 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
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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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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Obama May Extend Build America Bonds, Nominee Says |
By Ryan J. Donmoyer and Jeremy R. Cooke
Nov. 4 (Bloomberg) -- A nominee for a senior U.S. Treasury Department position said the Obama administration may seek to extend interest-subsidized Build America Bonds, calling the venture an “extraordinarily successful program.”
Michael Mundaca, President Barack Obama’s nominee to be assistant secretary for tax policy at the Treasury Department, told the Senate Finance Committee considering his nomination that the sale of about $48.3 billion of the bonds since April is proving “too successful to allow to go away.”
The federally subsidized securities were created by the $787 billion economic stimulus program enacted in February, and authority to issue them expires next year. Under the program, the Treasury pays 35 percent of issuer interest cost.
States and municipalities are selling the bonds as they fight record deficits. The debt is taxable, opening the market to investors who don’t invest in traditional tax-exempt municipal securities.
California has opted to sell more of its long-term debt in the form of the instruments, including $908 million of 30-year Build America Bonds yesterday through Citigroup Inc., after an unidentified investor asked the state to create a $750 million issue in a so-called reverse inquiry.
More Efficient
The U.S. wants to expand tax-credit and interest-subsidized debt programs such as Build America Bonds. They are a more efficient way to reduce issuer borrowing costs than tax-exempt debt, according to an Oct. 27 report by the Congressional Budget Office and Joint Committee on Taxation.
“It’s proven to have expanded markets for state and local bonds, and, therefore, I think it’s something we need to look at,” Mundaca, 46, said in an interview after his testimony.
Mundaca’s comments reflect the growing popularity of the bonds, which have offered higher yields than corporate debt with lower risk of default because issuers have taxing powers.
“It adds to the momentum that’s already out there for the Build America Bonds program to be extended,” said Peter Coffin, president and founder of Breckinridge Capital Advisors in Boston, which manages $11.5 billion in municipal bonds for investors. That includes $500 million that are taxable, such as BABs.
Coffin said the Treasury Department likes the BABs because they ensure more of the subsidy goes to issuing states and municipalities than traditional tax-exempt bonds, where more of the benefit goes to the investor. He said Treasury may consider reducing the 35 percent subsidy for the bonds if the program is extended or made permanent, a subject Mundaca didn’t discuss.
35 Percent Subsidy
While the 35 percent subsidy matches the top federal income tax bracket rate, even the highest-rated tax-exempt debt rarely trades at a 35 percent discount to Treasury notes. Since 1991, AAA tax-exempt bonds due in 10 years have traded at yields about 15 percent less on average than comparable-maturity taxable Treasuries, according to data compiled by Bloomberg.
The congressional study last month didn’t discuss “well- documented” trends that may be making some Build America Bonds more costly for taxpayers than they need to be, Concord, Massachusetts-based Municipal Market Advisors said in a Nov. 2 report.
Among the trends are price markups immediately after issuance, higher yields than comparable corporate bonds and costlier underwriting fees, the research firm’s report said.
California’s Sale
In the California sale yesterday, the state agreed to pay 300 basis points more than comparable-maturity Treasuries, a lower relative cost than the 365 basis-point spread in April and 325 basis points in October.
“The deal gave us the best spread-to-Treasuries of any GO BABs sale we have completed so far,” Tom Dresslar, spokesman for state Treasurer Bill Lockyer, said in an e-mail yesterday referring to general obligation debt. The state didn’t have to pay a significant “new-issue premium” to complete the deal, as in previous offerings, he said.
Thirty-year California BABs were trading at 299.8 basis points more than Treasuries when they sold the latest issue, according to the e-mail. By contrast, the October spread “was significantly higher than the secondary-market spreads of 270 basis points going into the transaction, and 300 basis points following pricing of that deal,” Dresslar said.
The five leading Build America Bonds underwriters by dollar volume this year, according to data compiled by Bloomberg, are Goldman Sachs Group Inc., with $7.4 billion in sales; JPMorgan Chase & Co., with $7.3 billion; Bank of America Corp.’s Merrill Lynch & Co., at $6.9 billion; Citigroup Inc., with $4.3 billion; Barclays Plc, at $3.1 billion; and Regions Financial Corp.’s Morgan Keegan & Co., with $1.8 billion.
Goldman Sachs and JPMorgan are based in New York; Bank of America in Charlotte, North Carolina; Barclays in London and Regions Financial in Birmingham, Alabama.
To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net;
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