The popular Build America Bonds program, which subsidizes state and local agency debt, is set to expire tomorrow.
The situation is likely to make liquidity the key driver in money managers’ decisions about what to do with the bonds in 2011, Bloomberg notes.
The vast majority of BABs are long-term issues. So states like California, which was the biggest issuer of the taxable bonds in 2010, seems destined to remain at the top of investors’ shopping lists in the coming year.
The state’s 7.25% yield on long-term BABs when compared with similar-termed Treasuries is running about 2.8 percentage points greater, according to the report.
The typical national BAB’s extra yield over Treasuries is running about a percentage point behind that of California’s at the moment, data from a Wells Fargo (WFC) index indicates.
The PowerShares Build America Bond Portfolio (BAB) has gained 8.8% through yesterday, according to Morningstar data. But in the past three months, it has lost 5.6%.
Meanwhile, the SPDR Nuveen Barclays Cap Build America Bond ETF (BABS) has slipped even more, down almost 8% on a total return basis.
Disclosure I am long Both BABS and BAB.
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