Potential End of BAB Program Hastens Impending Doom for Munis

Potential End of BAB Program Hastens Impending Doom for Munis

Check out the smack down investors laid on municipal bonds after Obama and Congress declined to extend the Build America Bonds program:

MUB Municipal Bond Price Chart December 2010Source: StockCharts.com

The WSJ reports:

If the BAB program is allowed to expire on Dec. 31, ending the sale of those federally subsidized, taxable securities, state and local governments would issue more tax-exempt long-term debt. To attract buyers, issuers would have to have to offer higher interest rates at an inopportune time as they struggle with diminished tax revenue and growing budget deficits.

“It’ll be a crush of new issues,” said Marilyn Cohen, president of Envision Capital Management. At the same time, with few exceptions, “the finances of the issuers are no better off than they were a year ago,” she said.

Full article at WSJ.com (and hat tip S&A Digest for the link).

The S&A Digest also points out that there’s political talk of eliminating the tax exempt status of munis.  Wow, that’d sure leave a lot of upside for investing in these ticking time bomb vehicles!

Hey, at least the borrowers’ ability to repay is rarely in question these days.

More doomsday fun with munis: