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Bipartisan Infrastructure Framework Includes 'Private Activity Bonds'

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What You Need to Know

  • The new bonds could help the country pay for investments in road repairs, utility system upgrades and other infrastructure improvements.
  • Details about the proposed bond programs are not yet available.
  • New bonds might give life insurers an alternative to investment-grade corporate bonds, which are paying less than 4%.

The big new federal infrastructure spending framework deal appears to include provisions for new or expanded infrastructure bond programs.

The administration of President Joseph Biden has negotiated the deal with a group of Democratic and Republican senators.

Financing sources for the new infrastructure investments will include public-private partnerships, private activity bonds and direct pay bonds, according to a summary released by White House officials.

White House officials gave no details about what the bonds might look like.

Biden administration officials say implementing the infrastructure proposal would fund power system upgrades, road and bridge repairs, the creation of an electric vehicle charging network, cybersecurity updates, an effort to connect all U.S. resident to high-speed internet, and new investments in Amtrak.

Life Insurers and Infrastructure

Any new bond programs created would be of keen interest to life insurers, because life insurers depend heavily on investments in bonds and other fixed-income instruments to support life insurance, annuity, disability insurance and long-term care insurance guarantees.

Interest rates on the kinds of high-grade corporate bonds life insurer have been very low in recent years. Typical high-rated corporate bonds are now paying rates under 4%.

Life insurers have been looking for vehicles they can use to increase yields without clashing with state insurance regulators’ investment quality standards.

U.S. life insurers how hold about $1 trillion in infrastructure-related bonds.

When Congress created a Build America Bonds program in 2009, to help the country recover from the 2007-2009 Great Recession, life insurers bought about one-third of the $182 billion bonds issued through that program.

The White House (Photo: Shutterstock)