iBonds ETFs: What to do with maturing iBonds?

• With over $30 billion in assets under management, iShares® iBonds® ETFs have become an important tool for advisors to manage fixed income exposures.¹
• The iBonds 2024 TIPS ETF matured in October and the Muni, U.S. Treasury, Corporate, and High Yield ETFs will mature in December.
• When iBonds ETFs mature, advisors may choose to reinvest the proceeds into another iShares iBond ETF to continue a bond ladder, change portfolio positioning, or begin using iBonds Ladder ETFs.

Whether your clients are investing in fixed-income for the first time or are seasoned pros, iBonds ETFs are a way for advisors to help clients try to solve some of today’s investing challenges -- and plan for tomorrow’s needs. 

This article is designed to help advisors plan for the annual maturity of iBonds TIPS ETFs in October, followed by munis, Treasuries, corporates, and high yield iBonds ETFs in December.

Before we drill into the maturity process, a quick primer on iBonds ETFs:

iBonds ETFs are designed to diversify like a fund, trade like a stock and mature like a bond. iBonds can be used to build a bond ladder, help manage cash flows from existing bonds, express a view on the yield curve, or plan and manage retirement by scaling Required Minimum Distributions (RMDs) or creating a bridge for clients who want to delay Social Security benefits. (Learn more about the 7 ways to use iBonds to help your clients and your practice.)

iBonds ETFs launched in 2010 with the goal of giving investors the look and feel of owning individual bonds through an ETF wrapper. Available in municipal, investment grade, U.S. Treasuries, high yield corporate, and most recently U.S. TIPS, iBonds ETFs are term maturity ETFs made up of a diversified portfolio of individual bonds with three key features:

• Mature like a bond. Investors get the benefit of having a defined maturity similar to individual bonds. iBonds ETFs typically mature in October or December of their maturity year.
• Trade like a stock. Individual bonds can pose challenges with liquidity, credit research, trading costs and cash flow management. iBonds ETFs help investors bypass the over-the-counter (OTC) market where dealers come into the mix and instead, trade on a stock exchange. 
• Diversify like a fund. Each iBonds ETF is made up of many bonds, so investors get the diversification benefits that come with owning a fund.

Here’s a deep dive into the iBonds maturity process and some options for advisors to consider for when iBonds ETFs mature.

Steps of the maturity process:

• Transition to cash: During the final year of its cycle, the fund invests proceeds from bond maturities in cash equivalents.
• Final bond matures: When the last bond matures, the fund will hold 100% cash equivalents.
• Repay shareholders: The fund will be delisted from the exchange and repay proceeds to shareholders in cash, just like an individual bond.

Figure 1: Fund holdings shift from bonds to cash as the fund approaches maturity (IBDO – 2023 Corporate iBonds ETF)

For the iBonds 2024 Term TIPS ETF, the last day of trading was October 15, 2024.

The calendar for the remaining iBonds ETFs set to mature in December 2024 is as follows:

When iBonds ETFs mature, advisors may choose to reinvest the proceeds into another iShares iBonds ETF to continue a bond ladder, change portfolio positioning, or begin using iBonds Ladder ETFs.

1. Reinvest proceeds into the next rung on your ladder
When the 2024 iBonds mature, you can invest in a 2034 corporate iBonds or even as far out as a 2054 US Treasury iBonds ETF. Many advisors build 1-5 year bond ladders, but you can use iBonds to create custom solutions in a range of maturities. See the full list of iBonds ETFs below:

2. Change bond portfolio positioning
When cash hits client accounts, advisors can use this time to decide which sector of the bond market to invest. Use the iBonds Ladder tool to check current yields on U.S. Treasury, TIPS, municipal, investment grade corporate and high yield iBonds ETFs.

3. Put your next ladder on autopilot - introducing iBonds Ladder ETFs
iBonds Ladder ETFs are designed to hold an equal weighting of five iBonds ETFs in the 1-to-5 year range and are professionally managed to rebalance every June. This series of funds do not mature and are designed for clients who want a perpetual bond ladder.

Advisors can use iBonds ETFs to manage a wide range of client needs, including cashflow management, asset-liability matching and retirement planning. iBonds ETFs enable advisors to build bond ladder strategies without the time-consuming and potentially costly effort to research and purchase the individual bonds. And iBonds ETFs can make it easy to scale bonds across multiple client accounts.

Planning for the upcoming maturity of iBonds ETFs can help advisors take advantage of the potential benefits iBonds have to offer clients.