MarketWatch
Washington wants to bring back Build America Bonds. The muni market isn’t buying it
“State and local issuers are deeply ambivalent about the BABs program,” said Matt Fabian, a partner with Municipal Market Analytics. “It’s being talked about like it’s the core of the infrastructure program, but issuers in general don’t care because demand for tax-exempt bonds is now the strongest it’s ever been,” he said.
“We are flooded with demand,” Fabian said.
The yield on the S&P Municipal Bond General Obligation Index is currently about 1.93%, among the lowest on record back to 2009. Bond yields and prices move in opposite directions.
While Washington lawmakers may believe that a lower interest rate would help issuers, thereby boosting the amount of overall spending on infrastructure, MMA’s calculations show the federal subsidy would have to be at least as high as 50% to make BAB issuance worth it.
More to the point, Fabian told MarketWatch, “state and local infrastructure spending is a zero-sum game. Governments only have so much in revenues to pay back bonds, no matter how low the interest rate.”