When taxable Build America Bonds were introduced to the market in April, one attraction for issuers was said to be the wider investor base they would garner, in contrast to the limited market for traditional, tax-exempt municipal bonds. But while BABs have been successful in expanding liquidity in the muni market, purchases from abroad remain relatively shallow.

This is surprising given the excess spread BABs offer over Treasuries. According to data obtained from Wells Fargo & Co., yields in October ranged from 173 basis points to 189 over Treasuries, and in late August the spread reached 207. Moreover, yields were much higher when the program began. At its inception in mid-April, the University of Virginia offered a $250 million BAB deal with a 6.20% coupon, giving investors a 245 point spread over the benchmark 10-year Treasury.

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