JP Morgan Analysts (NYSE: JPM) Say that Build America Bonds Managed by Goldman Sachs (NYSE: GS) and Barclays (NYSE:BCS) Will Increase by 40% in 2010.

Analysts from JP Morgan Chase & Co (NYSE: JPM) have said that new issues on Build America Bonds, which are partially managed by Barclays Financial (NYSE: BCS) and Goldman Sachs (NYSE: GS), could rise as much as 40% in 2010, totaling more than $110 billion in new bonds.

Build America bonds are a stimulus initiative where the U.S. Treasury agrees to pay 35% of the interest on bonds for states and municipalities. There has been more than $55 billion in sales of these bonds since they began in April and are poised to total more than $59 billion by the end of the year. The monthly average origination of these bonds will likely average about $6.56 billion according to a November 27^th report released by JP Morgan Chase’s analysts.

Massachusetts alone wants to issue $500 million in new bonds next year to fund public works offerings. Goldman Sachs and Barclays are leading the efforts of handling this offering. This will be the third group of offerings sold by the state after deals made to improve its university and mass-transit systems made in October. The state’s general obligation pledge is rated as AA by S&P’s and Fitch Ratings.

This stimulus initiative is poised for significant growth and may produce as high as $9.17 billion per month in deals next year, according to JP Morgan estimates. Municipalities and states are looking to lower their borrowing costs by making use of this subsidized alternative to traditional tax-exempt financing. This increase would help stabilize the value of municipal bonds in the broader market, according to the report.

Chris Holmes and Alex Roever, who are both JP Morgan fixed-income strategist, said in the report, “The motivation to issue BABs instead of tax-exempt debt is clear and simple: to save money.”

Bank of America’s Merrill Lynch Muncipal Master Index, which accounts for interest income and price swings, rose by 13.7% during the year through November 27^th, the best for that period since 1995. During the same period, the Treasury Master Index dropped by 1.2% Bank of America’s Merril Lynch Build America Bond index has returned to 6.1% since April 30^th.