subject: Build America Bonds And Senior Bank Loans [print this page] Build America bonds and senior bank loans can be good investment options for those thinking about increasing potential returns but are not able to take on as much risk. You can augment your retirement income and boost your nest egg with these products and investments that can give you comparatively more sizeable fixed income without your portfolio risk shooting through the roof.
Compared to corporate bonds, Build America bonds result in bigger yields. These types of municipal bonds are taxable ones developed through the American Reinvestment and Recovery Act to come to the aid of municipalities and states wanting to obtain discounted loans. Issuers of these kinds of municipal bonds usually get a government subsidy of 35% on interest throughout the lifetime of the debt.
One concern about these securities is investor liquidity, partly due to the relatively small market estimated at $160 billion when compared to the entire market of municipal bonds mounting to $2.8 trillion. Also, the bond program ends when this year does, although lawmakers may vote to extend. If Congress does not, liquidity may deteriorate in the near future. To investors who want to earn well from these bonds, larger issues are recommended due to the higher degree of associated liquidity, but you can also choose to hold these bonds up to the maturity date.
Senior bank loans are a rare kind of fixed-income venue for profit with low risk. These usually generate upwards of 6% for its investors as loans made to some classes of commercial borrowers. Yields are changed around after 90 days, helping these loans cope with possible rises in interest rates.
Loans such as these come with a lesser degree of credit risk compared to bonds funds that generate high yields due to the senior status of the loan when seen as part of the structure of a capital from a company or business. In case the borrower becomes delinquent or defaults in his or her payments, the bank loan issuer has top priority when it comes to payments.
Despite an index drop of almost a third two years ago due to the collapse of credit markets and the retreat of major dealers and brokers in terms of trading, these same dealers and brokers have now repaired the damage. The 2009 default rates, at a maximum of 10.8%, have steadied at lower than 3% today.
Seniors who want to make more money from fixed-income investments can do so from safe income sources that can generate bigger yields without the added risk. Senior bank loans and Build America bonds, if chosen from the right issuers, can help you boost your nest egg with larger returns and comparatively manageable risk.
