The Build America Bond program often reminds me of the Packard Motor Company; unique, innovative, and put on the shelf far too soon.

In case you missed them, Build America Bonds [BABs] were a special issuance of federally subsidized municipals bonds offered under the American Reinvestment & Recovery Act of 2009. Typically lost in the $3 trillion muni market, BABs have made the news lately for their potential to be negatively affected by sequestration.

In this article, I'll summarize the major hypothesis as to why investors haven't reacted to sequestration, and make the case for why BABs are still an interesting alternative to traditional munis. I'll also breakdown 5 unique funds in which you can still find BABs.

Building a Nation

Since BABs are a unique instrument, and investors should take some time to understand their history.

In the wake of the slowest economic growth since 1930,

By Timothy Strauts

Municipal bonds had another good year in 2012 as interest rates continued to fall and, despite making a number of high profile headlines, municipal bankruptcies were contained. With interest rates on municipal bonds at 45-year lows, what can investors expect in 2013?

Fiscal Cliff
The "Fiscal Cliff" compromise answered the question as to whether interest on municipal bonds would be taxed in 2013. Municipal bonds avoided all the various proposals to eliminate or reduce their tax exemption. In fact, the increase in the top income tax rate to 39.6% from 35.0% may make tax-free municipals more attractive for some high income investors. After a sell-off in December the municipal market has rallied as investors have shaken off concerns about potential changes to muni bonds' tax treatment in the near term. But the tax status of municipal bonds is far from resolved in Congress.

Credit Quality

When I wrote Bond Markets in Review: Q1 2012, the takeaways were simple. Performance of credit was monotonically and positively related to risk, with AAA-rated bonds the laggard and CCC-rated bonds the outperforming ratings cohort. The risk-on attitude in the first quarter extended negatively to traditional flight-to-quality instruments as U.S. Treasury securities underperformed spread sectors. What a difference a quarter makes. Returns on corporate credit in the second quarter were led by the highest quality bonds as the weakest quality CCC-bonds proved to be the laggard.

Corporate Bonds

With the A and better rated components of the corporate bond index all yielding inside three percent, it is difficult to envision continued market beating returns from these ratings cohorts. For ratings agnostic investors, I still believe that BB-rated bonds will compensate investors appropriately for the risk in this low default rate environment. While the 5.8% yield these securities pay on