Year –to-date 2009, the taxable municipal market, stimulated by the Build America Bonds Program (see our Advisory Note for background information) has had issuance of over $3.3 billion, and appears to accelerating. This issuance has come from a assortment of issuers, states, and for a variety of different uses.
Historically, taxable munis have been used to fund projects that are not viewed as benefiting the public, and have had its largest issues be for funding pension deficits. The Build America Bond Program is changing the dynamics of this market. In 2009, taxable munis have been issued for capital improvement projects by school districts, electric utilities, public and private universities, low income housing, transportation authorities, state and local governments. This is adding depth, diversification and therefore should add liquidity to the market.
Investors, unable to realize the tax-exempt income from municipal bonds, looking for the historically strong credit profile of its issuers, and looking to realize good income, should be considering taxable municipal bonds as an investment alternative. On average, five year maturing bonds are yielding 2.60% higher than like maturing treasuries, and 3.08% higher the ten year treasuries. This income comes with the safety and dependability historically provided by the municipal market. Next up, California, New Jersey and Texas all have large deals pending within the next 2 weeks, providing roughly an additional 6 billion in issuance.