A Muni Bond ETF Ladder Strategy to Hedge Rate Risk

With the Federal Reserve expected to continue raising rates, muni investors can consider a bond ladder strategy to diminish rate risk through target-date exchange traded funds.

BlackRock’s iShares recently expanded on its municipal bonds iBond line after rolling out the iShares iBonds Dec 2023 Term Muni Bond ETF (BATS: IBML). IBML has a 0.18% expense ratio.

IBML joins the other muni iBonds, including:

  • iShares iBonds Sep 2017 Term Muni Bond ETF (NYSEArca: IBMF)
  • iShares iBonds Sep 2018 Term Muni Bond ETF (NYSEArca: IBMG)
  • iShares iBonds Sep 2019 Term Muni Bond ETF (NYSEArca: IBMH)
  • iShares iBonds Sep 2020 Term Muni Bond ETF (NYSEArca: IBMI)
  • iShares iBonds Dec 2021 Term Muni Bond ETF (NYSEArca: IBMJ)
  • iShares iBonds Dec 2022 Term Muni Bond ETF (NYSEArca: IBMK)

These defined-maturity bond funds typically buy bonds that mature in the year the ETF will terminate, ensuring that investors can collect the bonds’ face value at maturity, along with a steady income stream along the way. Consequently, investors are meant to buy-and-hold these securities until maturity.

Like the new ETF’s name suggests, IBML will provide exposure to investment-grade municipal bonds that mature before December 2, 2023 to help investors gain exposure to tax-exempt income, expand on a bond ladder and manage interest rate risk.

“iBonds ETFs are designed to provide a yield-to-maturity profile comparable to that of the underlying bond portfolio and seek to preserve an investor’s anticipated yield-to-maturity through a combination of monthly distributions and a final end-date distribution,” according to iShares.