Build America Bonds

MSRB Report Shows BAB Trading Volume Totaled $117.4B in 2009

Primary and secondary market trading volume for Build America Bonds totaled $117.4 billion on 271,777 trades last year, according to a report released Friday by the Municipal Securities Rulemaking Board.

The six-page report follows up on a similar study the board released in July. It was issued the same day the Government Accountability Office said the Internal Revenue Service could improve its compliance work with BABs if Congress granted it the ability to collect and publish more information about BAB-financed projects.

The GAO’s 62-page report found that while the IRS quickly implemented a number of stimulus law programs during the height of tax season last year, it is limited in how much data about the programs it can collect and publish.

In fact, the report found that BAB-financed projects may be similar to projects funded directly by the American Recovery and Reinvestment Act, but very little information about BAB projects is publicly released.

To publish additional information, Congress would have to pass a law granting the IRS that authority.

IRS commissioner Douglas Shulman said in a response included in an appendix of the report that he would wholeheartedly welcome such authority, which he agreed could aid the service in ensuring that BAB proceeds are spent appropriately.

Meanwhile, the MSRB noted in its report that yield spreads of 9- to 11-year double-A general obligation BABs have closely tracked a corporate composite index with similar maturity and ratings.

In addition, spreads of 9- to 11-year double-A GO BABs to a tax-exempt municipal index comprised of 10-year double-A minus GOs decreased to 142 basis points in December from an average of 228 basis points in April.

The report offers no conclusions about what the data means, although market participants said it’s noteworthy to see that BAB yields generally correlated to similar corporate bonds, after the BAB yields initially were notably higher.

The MSRB also said that BABs accounted for 4.3% of the overall municipal par volume and 3.7% of the number of trades reported to the board during roughly the first eight-and-a-half months after the first BABs were issued in April.

From April 15 through Dec. 31, 680 issuers in 43 states and the District of Columbia took advantage of the program, with 749 different issuers selling a total of $63.9 billion of BABs. California issuers accounted for nearly one quarter of all BAB issuance, with $15.4 billion across 63 issues.

During the same period, BAB sales accounted for 20% of all long-term issuances — debt with maturities of 13 months or more — pushing all taxable issuance to 26% of the overall market.

For the entire calendar year, BAB issuance caused the taxable municipal market to account for nearly 21% of all long-term issuance by par volume, compared to an average of about 7% since 2000.

Separately, the MSRB announced a New York City outreach event March 3 at the Harvard Club in Manhattan. The event, which will begin at 5:00 p.m. and is free to market participants, is being held in lieu of a board meeting this year in New York. For more information, contact Tina Hanachi at 703-797-6600 or thanachi@msrb.org.

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