COcheesehead
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I have found building out my ladder kind of fun and easy over the last 8 months. I now have about 50% of our portfolio in a ladder that extends out about 10 years…. 5 year average duration, yielding a bit over 5.25%. Good quality investment grade corporates.
My question is to those that have laddered for a while. Let’s say in 2-3 years the 10 year treasury is down under 2% and investment grade corp bonds with 8-10 year maturity are yielding just under 3%. Are you flat out mechanical in managing your ladder and buying 10 year bonds at those low yields or do you find yourself shortening your ladder duration and buying bonds with much shorter maturities?
I’ve been laddering since about 2015.
Here’s my experience. You pick your spots. As Freedom used to say, no one is going to buy sub 1% bonds, but funds do - they have to.
In March of 2020 munis went on sale because every municipality was going to go broke - which didn’t happen. I loaded up the boat on some long call/no call window, 5%-6% coupon, double tax free bonds. I still have those and they pay well and will pay well for years.
At other times when bonds matured I looked at longer durations, lower quality, etc to get the “best” available at the time. I still have never had a bond default.
Keep in mind if you have a longer duration ladder and it sounds like there are some folks like me on here, your rungs do not all mature at once and rate cycles change.
Even though I started laddering in the bad old days, I still was able to almost double my income in the last year and a half or so. I also jettison bad bonds from time to time.
Locking in decent longer term rates right now isn’t a bad thing. We are nearing the end of the rate hike cycle. People playing the short term game, IMHO are playing musical chairs and may not have a seat when the music stops.
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