Bloomberg reported that the Bond Buyer 20 General Obligation Bond Index(1), a measure of how much it costs state and localities to borrow money, is poised to test its recent record low of 4.03% reached in December 2006.
Muni analysts attribute the drop in yields to strong demand from bond funds faced with a shrinking supply of tax-exempt securities. The reason for the shrinking supply is that almost $35 billion in new issues never came to a market because states and localities decided to sell taxable Build America bonds. The interest cost of Build America Bonds is subsidized by the U.S. government reducing borrowing cost below tax-exempt levels.
What does this mean to Mandalay clients? It could mean new purchases of munis may take longer to place and, of course, the expectation of lower yields.
One last thing; the U.S. government subsidy program is not scheduled to expire until December 31, 2010. What may be good for the economy and municipalities isn’t necessarily good for muni investors.
(1) Index of 20 municipal issuers rated Aa2 would pay to borrow money for 20 years.
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Hello, I don't familiar about the american bond and monis. If you have more information about it then please share with us. I think it's more useful for every investors.
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