Powershares has put together a new ETF to track the Bank of America Merrill Lynch Build America Bond Index. The BAB ETF will consist of securities that are eligible to participate in the Build America Bond Program.

The Build America Bond Program was created under the 2009 American Recovery and Reinvestment Act in order to decrease borrowing costs of local and state governments.  BABs are taxable municipal bonds that are actually subsidized by the U.S. Treasury.

There are two types of BABs - direct payment and tax credit bonds. Direct Payment BABs will pay the issuer 35% of the interest payments made to investors. Tax credit BABs will pass the 35% along as a tax credit. BABs were launched in April of 2009 and have been steadily increasing in popularaity with each passing day.

Therefore, due to their newfound popularity, it was only a matter of time before someone created new bond ETFs to track their performance.  Or in the case of the new funds, tracking the BAB index.

Here are some highlights regarding the new ETF...

1. It will invest at least 80% of its total assets in taxable municpal securities elegible for the BAB program
2. It will disclose its full portfolio holdings on a daily basis
3. The securities in the fund must have an investment-grade rating
4. The securities must have at least one year to maturity
5. Securities must have a fixed coupon schedule
6. Securities must have a minimum amount outstanding of $1 million
7. Securities in the ETF must have a direct pay federal subsidy

It's not only nice to see more bond ETFs, but more ETF innovations as well. And if your looking for more bond ETF information, you've come to the right place...

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