Closet_Gamer
Thinks s/he gets paid by the post
I’m continuing to plan a five year fixed income ladder. My goal would be equal weighted rungs, with a consistent credit quality mix of:
Treasury/CD: 40%
Corporate: 50%
High Yield: 10%
I’m intending to use Blackrock’s iBonds as a way to get guaranteed YTM and diversification.
On inspection, the yield difference betwee CDs and iBonds corporate ETF in some places are a bit odd. For example:
Schwab is quoting a 5.6% YTM five-year brokered CD from First State Bank of Ohio. IBDT, the corporate ibond for 2028, is also YTM of 5.6%.
Similarly, the five year 40/50/10 iBond portfolio has a weighted YTM of 5.45%.
That’s about what I would get from just building a 5 year CD ladder with zero credit risk.
So, a few questions…
1 - Is there any reason I wouldn’t just grab the 5.6% CD for the Year 5 rung rather than putting the money into the corporate ETF? The CD has zero credit risk while the corporate entails some level of default risk (small but non-zero nonetheless).
2 - Am I missing anything from a portfolio theory/structure or return perspective by not just putting all the money into laddered CDs and foregoing the complexity/risk if the aggregate YTM (5.45%) is the same?
3 - When new money becomes available (either new contribution or legs maturing), wouldn’t it always make sense to do the same analysis above?
This is my first foray into building a fixed income structure, so apologies if any of the above is trivial.
Treasury/CD: 40%
Corporate: 50%
High Yield: 10%
I’m intending to use Blackrock’s iBonds as a way to get guaranteed YTM and diversification.
On inspection, the yield difference betwee CDs and iBonds corporate ETF in some places are a bit odd. For example:
Schwab is quoting a 5.6% YTM five-year brokered CD from First State Bank of Ohio. IBDT, the corporate ibond for 2028, is also YTM of 5.6%.
Similarly, the five year 40/50/10 iBond portfolio has a weighted YTM of 5.45%.
That’s about what I would get from just building a 5 year CD ladder with zero credit risk.
So, a few questions…
1 - Is there any reason I wouldn’t just grab the 5.6% CD for the Year 5 rung rather than putting the money into the corporate ETF? The CD has zero credit risk while the corporate entails some level of default risk (small but non-zero nonetheless).
2 - Am I missing anything from a portfolio theory/structure or return perspective by not just putting all the money into laddered CDs and foregoing the complexity/risk if the aggregate YTM (5.45%) is the same?
3 - When new money becomes available (either new contribution or legs maturing), wouldn’t it always make sense to do the same analysis above?
This is my first foray into building a fixed income structure, so apologies if any of the above is trivial.