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Portfolio > Mutual Funds > Bond Funds

Nuveen and State Street Debut Build America Bond ETF

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State Street Global Advisors (SSgA) and Nuveen Investments recently formed an alliance to have Nuveen become the sub-adviser for municipal-bond SPDR exchange traded funds (ETFs). And once again, both investment firms are teaming up.

The SPDR Nuveen Barclays Capital Build America Bond ETF began trading on May 13 with the ticker symbol BABs.

Build America Bonds, or BABs, were created under the American Recovery and Reinvestment Act of 2009 to reduce the borrowing costs for state and local governments.

Under the program, the U.S. Treasury Department subsidizes 35 percent of the total coupon interest on Build America Bonds paid to investors.

“Build America Bonds are a relatively new asset class; however, as investors and advisors have grown more familiar with these bonds, demand for diversified access to this segment of the municipal bond market has increased substantially,” said Anthony Rochte, senior managing director at State Street Global Advisors, in a statement.

According to Bloomberg, Build America Bonds are the fastest growing segment of the $2.8 trillion municipal bond market, accounting for around 26 percent of new bond issuance this year.

The performance and yield of BABS are linked to the Barclays Capital Build America Bond Index, which consists of 85 issues.

The fund’s annual expense ratio is 0.35 percent.

Unlike most municipal bonds, Build America Bonds are taxable and current yields are comparable to corporate bonds, which historically have had a higher default rate than municipal bonds.

The average yield on Build America Bonds is just under 6 percent.

Between the launch of the program in April 2009 and March 31, 2010, there have been 1,066 separate Build America Bond issues, which have supported more than $90 billion of municipal financing, according to SSgA.

In March, the U.S. House of Representatives agreed to extend the Build America program until April 2013. Under the bill, federal subsidies to states and local governments would be reduced from 35 percent to 33 percent in 2011, 31 percent in 2012 and 30 percent in 2013.


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