Looking for ways to raise money the least expensively, Build America Bonds have become a popular way to raise capital, and according to J.P. Morgan (NYSE:JPM), could increase by 40 percent in 2010, which would bring the total for the year to about $110 billion.
So far in 2009, sales of Build America Bonds stand at $55 billion, and are expected to end the year somewhere around $59 billion. The program, which was launched in April, would average about $6.56 on a monthly basis, assuming the $59 billion figure is close to the reality.
If next year’s estimates are accurate, that would bring the monthly average total to over $9 billion. There is expected to be a flurry of activity near the end of 2010 because the program is scheduled to end at that time.
Speculation has been swirling about on whether Congress will extend the program after 2010, and also about the possibility they may cut the level of the current subsidy of 35 percent.
With cheaper capital being looked for, JPMorgan believes an increase in sales of Build America Bonds could help shore up the rest municipal bond market. That could possibly strengthen them throughout 2010.
In the JPMorgan report, they also stated that the lower-rated Build America Bonds yields could rise as high as 30 basis points if the recovery for governments lags behind a corporate recovery. That’s when comparing them to similarly rated corporate debt.
So how have Build America Bonds with a BBB rating done in contrast to their counterparts? They’ve averaged a minimum of 100 basis points more than comparable corporate bonds. The difference in AAA securities has been under 20 basis points, according to the JPMorgan report. This is all as of November 20.
Since the launch of Build America Bonds, the BofA Merrill Lynch Build America Bond Index shows there’s been a return of 6.3 percent since April 30.
