Sequestration Threatens Direct-Payment Bond Subsidies for Issuers

Local governments that have issued direct-pay bonds, such as Build America Bonds, should be aware that their subsidies from the federal government on those bonds are potentially subject to the budget cuts mandated as part of the so-called “fiscal cliff.” Those subsidy payments cover 35% of the interest costs on direct-pay bonds. Should the scheduled sequestration take effect, subsidies on direct-pay bonds would be cut an average of 7.6%, according to the Office of Management and Budget.* Issuers would typically be responsible for making all interest payments on their own. Build America Bonds have not been issued since 2010.

Change in FDIC Deposit Insurance

Noninterest-bearing transaction accounts, used by many small businesses, local governments, and nonprofit organizations, have had unlimited deposit insurance from the Federal Deposit Insurance Corporation since the 2008 financial crisis. However, that program is scheduled to expire as of December 31, 2012. The previous limit of $250,000 on a single account will be reinstated unless new…

A Mixed Friday

Friday’s trading session ended with mixed moves. The Dow and S&P 500 closed in the green zone while the Nasdaq shed some points. JPMorgan Chase, Caterpillar, IBM and Bank of America led the Dow’s ascent. Optimism provided by better-than-anticipated November jobs numbers was diminished by concerns about the progress on the U.S. budget talks in Washington.