Municipal Bond Forum
Home > Municipal Bond Forum > BABs >
Government subsidizes BAB interest payments
Q
Since the federal government is guaranteeing some of the interest on Build America Bonds (BABs), is it also guaranteeing the principal?
A
James A. Klotz responds:
The federal government is providing an interest subsidy for eligible bond issues of state and local governments. This subsidy offsets the higher interest paid by the issuer.
There really isn’t a federal “guaranty” for BAB interest payments. The federal government writes a check to the municipal entity that is making the interest payment on the BABs.
The federal government is not guaranteeing that the issuer will make its payments, or make them on a timely basis. The principal of these bonds is also not guaranteed, nor subsidized by federal payments.
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.