May 11, 2023
With interest rates near the highest levels in 15 years, savvy advisors are building bond ladders to help clients access these yields.1 Bond laddering is a useful method to invest in the bond market. The idea is you buy a series of bonds that mature in consecutive calendar years. Then when the shortest-duration bonds mature, you buy the following year. To set up a 5-year bond ladder with $1,000 to invest, for example, you would buy five bonds for $200 each that mature in 2024 to 2029. Once the 2024 bonds mature, you can stay invested by buying a 2030 bond with the proceeds.
iBonds ETFs enable advisors to build bond ladders without the time-consuming and potentially costly effort to research and purchase the individual bonds. You can buy equal amounts of each ETF for clients. Each iBond ETF matures in December of its calendar year. When it matures, you can then purchase the next calendar year, as illustrated below.
Source: BlackRock. This information should not be relied upon as research, investment advice or a recommendation regarding the funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change.
iBonds ETFs make it easy to scale bonds across multiple client accounts. Not every bond trades every day, so when setting up client accounts with individual bonds, you may be getting different CUSIPs. Managing the cash flows, combing through bond inventory to stay fully invested can be a full-time job. Even when outsourcing to a fixed income separate account manager, not every client account meets the minimum size, which typically can be $250,000 or more.
In contrast, iBonds ETFs allow for a more consistent experience. All clients own the same CUSIPs. Since iBonds ETFs trade on an exchange like a stock, they are block tradeable and limit orders can be used.
Source: BlackRock. This information should not be relied upon as research, investment advice or a recommendation regarding the funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change.
In addition to laddering, iBonds ETFs can be used to:
iBonds ETFs are now available in US Treasuries, TIPS, municipals, investment grade and high yield corporates. Check out the iBonds Laddering Tool as a way to get started with a bond ladder. This tool will allow you to see yields, durations, and the number of bonds across different bond sectors.
Source: BlackRock. Investment comparisons are for illustrative purposes only. To better understand the similarities and differences between investments, including investment objectives, risks, fees and expenses, it is important to read the products' prospectuses.
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1 Source: Bloomberg as of April 20, 2023
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in the value of debt securities. Credit risk refers to the possibility that the debt issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and its return and yield will fluctuate with market conditions.
The iShares® iBonds® Muni ETFs (“Funds”) will terminate in December of the year in the Fund’s name. An investment in the Fund(s) is not guaranteed, and an investor may experience losses, including near or at the termination date. In the final months of the Fund’s operation, as the bonds it holds mature, its portfolio will transition to cash and cash-like instruments. Following the Fund’s termination date, the Fund will distribute substantially all of its net assets, after deduction of any liabilities, to then-current investors without further notice and will no longer be listed or traded. The Funds do not seek to return any predetermined amount.
During the final months prior to the Fund’s planned termination date, its yield will generally tend to move toward prevailing tax-exempt money market rates, and may be lower than the yields of the bonds previously held by the Fund and lower than prevailing yields for bonds in the market. As the Fund approaches its termination date, its holdings of money market or similar funds may increase, causing the Fund to incur the fees and expenses of these funds. The rate of Fund distribution payments may adversely affect the tax characterization of an investor’s returns from an investment in the Fund relative to a direct investment in municipal bonds. If the amount an investor receives as liquidation proceeds upon the Fund’s termination is higher or lower than the investor’s cost basis, the investor may experience a gain or loss for tax purposes.
Diversification and asset allocation may not protect against market risk or loss of principal. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. Transactions in shares of ETFs may result in brokerage commissions and may generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
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