The bifurcation in the municipal market continued in February as tax-exempt debt issuance slumped compared to last year, but total issuance moved higher as a result of taxable Build America Bonds.

Under the BABs program, enacted under the American Recovery and Reinvestment Act in February 2009, municipal issuers can issue taxable bonds and receive a 35% subsidy on the interest cost. As a result, issuers since last March have had access to a wider investor audience including foreign investors and pension funds. The new choice for issuers has caused tax-exempt issuance to become scarcer.

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