Build America Bonds

by Cara Scatizzi

Build America Bonds Splash image

Build America Bonds (BABs) are new taxable municipal bonds that were authorized in February under the American Recovery and Reinvestment Act of 2009.

These new bonds allow state and local governments to issue taxable bonds in 2009 and 2010 for government capital projects; the issuers receive a direct subsidy payment from the U.S. Treasury for a portion of their borrowing costs. The intent is to provide municipal issuers access to a broader market of buyers, such as tax-exempt and lower-tax-bracket investors. In turn, these investors now have a new bond option—municipal bonds that pay an interest rate that is competitive with other

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Cara Scatizzi is a former associate financial analyst at AAII.


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