U.S. News

Record Demand Seen for Build America Bonds

Jesse Bergman|Producer
WATCH LIVE

Just weeks before the Build America Bonds program is set to expire, issuance and demand for the government-subsidized notes have reached a fever pitch.

NJ Turnpike Toll
Photo by: Bobby Hindy

Mention of any progress on an extension of the bond subsidies was notably absent in a wide-ranging agreement between White House and Republican leaders announced by President Obama on Monday night

According to Reuters, one congressional Republican aide said, "We have a very firm line on BABS [Build American Bonds]—we are not going to allow them to be included."

Pricing pressure from a glut in supply, uncertainty over changes in the government’s subsidy levels, and a spike in the Treasury’s 30-Year bond—to which municipal notes are typically pegged—have pushed yields higher, according to investors.

Some investors and analysts say this may be the sweet spot for buying the Build America Bonds, which are now the fastest-growing part of the $3 trillion municipal debt market. “We think we’re at the high for yields,” says one muni bond investor. “If you’re going to buy, now is the time.”

Striking a similar tone in a recent note to clients, Citigroup

fixed-income strategist George Friedlander recommended that investors start “aggressively adding to their positions” if they haven’t already.

Last month, states and municipalities issued a record $15.8 billion in Build America Bonds, the highest one-month total since the program began in April 2009, according to data kept by Thomson Reuters. December could see similar, if not higher, demand, say investors, as an estimated $10 billion in Build America Bonds is expected to hit the market in the coming weeks.

And more issuers continue piling in. The New Jersey Turnpike Authority is selling $1.5 billion in Build America Bonds later this week, the largest of any offering scheduled for the rest of the year, according to Thomson Reuters. In addition, projects in Alaska, California, and Missouri, will look to price hundreds of millions in Build America Bonds, as well.

Today, the Securities and Exchange Commission (SEC) will hold an all-day hearing on the issues facing investors and regulators in the municipal securities market.

SEC Chair Mary Schapiro and prominent municipal bond investors, including James Lebenthal of Lebenthal & Company and Joseph Deane, a portfolio manager with Western Asset Management, are scheduled to participate.