NEW YORK, May 23, 2013 /PRNewswire/ -- Infrastructure bonds, used to finance essential services such as roads, schools and bridges, appear attractive because of their potential to offer higher after-tax income than comparably rated general obligation bonds and historic resilience during weaker economic conditions, according to Standish, the Boston-based fixed income specialist for BNY Mellon.
"For over a century, federally tax exempt municipal bonds have been the main source of funding to finance infrastructure projects – such as roads, schools, utility plants, bridges, hospitals and airports – that are essential to our everyday living," said Jeffrey B. Burger, CFA, Standish portfolio manager and author of the paper, "The Case for Tax Exempt Infrastructure Bonds." "As an investment option, 'infrastructure bonds' have the potential to provide investors with a high level of federally tax free regular income that is derived from revenues related to these essential long-term projects and services."
According to the paper, other reasons why investors should consider an investment with infrastructure bond exposure include:
- Revenue Bonds – Including Infrastructure Bonds – May Provide Credit Stability – Essential-purpose revenue bonds may be less impacted in weaker economic periods than general obligation bonds, and may possibly benefit with service usage increases during times of economic growth.
- Municipal Revenue Bonds May Offer Higher Yield Potential – Municipal revenue bonds have the potential to offer both a high level of absolute and relative after-tax current income potential versus GOs of equal maturity (which, generally, are perceived to have a higher credit quality as they are backed by the state's taxing power).
"Municipal bonds play a critical role in funding America's infrastructure," said Christine L. Todd, President of Standish. "This is an area of growing investment opportunity in higher inflationary environments, and has a noble purpose. The inelastic demand for infrastructure-related services ensures the creditworthiness for bondholders.""As we look toward the future, we see an aging infrastructure approaching the end of its life-cycle," said Burger. "In addition, a growing U.S. population is fueling the need for new construction. This will pressure state and local governments across the country to make the investments required to sustain the usefulness and safety of U.S. infrastructure."