PowerShares has plans in the works unveil an exchange traded fund (ETF) that invests in Build America Bonds, which are part of the federal stimulus plan enacted in February.

The taxable debt instruments are part of the federal stimulus plan. The bond portfolio will invest mostly in the bonds, which were developed under the American Recovery and Reinvestment Act of 2009, which went into place in February, according to a Securities and Exchange Commission (SEC) filing, states Daisy Maxey of The Wall Street Journal.

Additionally, it will invest in securities that make up the Merrill Lynch Build America Bond Index, designed to track the performance of dollar-denominated Build America Bonds issued by U.S. states and territories in the U.S. market.

From a tax perspective, these bonds are a bit different than your run-of-the-mill municipal bonds.  The interest received on Build America Bonds is generally subject to federal and state income tax. However, in states where most muni bonds are exempt from state taxes, Build America Bonds are, too.

For more stories on new ETFs, visit our new ETF category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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