Municipal Bond Forum

We Know Where Muni Rates Are Going, So Why Not Build A Bond Ladder?

I read with great interest your concerns about bond ladders, “Today’s Market Especially Cruel to Bond Ladders.” However, if long-term muni rates are about 3.00%, but today are only about 2.00%, then putting a portion into a ladder makes sense if you’re starting a long-term program today using a current lump sum. If, for example, one assumes that rates would start rising in five years then gradually plateau five years after that, wouldn’t it make sense to allocate some portion of the amount to a ladder between five and 10 years and the rest to an immediate commitment to a very long-term maturity, like 40 years? The main decision then would be the percentage allocated to the ladder portion.
J.F., California

James A. Klotz responds:

We have trouble commenting on your scenario because, as you say, it is once again based on your assumptions regarding the future direction of interest rates.

We would ask you this question: Did you or any of the experts predict rates would be where they are today?

We admit to having no crystal ball to tell us where rates will be in five years.

As a result, we will continue to embrace the successful strategy of maximizing income on every purchase, rather than laddering, which continues to fail muni investors.