Municipal Bond Forum
Role of the yield curve
Q
I appreciated your article on laddering. I agree that predicting future rates is futile and that ladder strategies are not necessarily wise — if you want to make money. I notice you didn’t mention the importance of slope in determining what maturities you should buy. Given enough incentive, or slope, a buy-long-and-hold strategy is brilliant for the tax-free investor. In a flat yield curve environment (I have no idea the last time the muni curve was any degree of flat), I still wouldn’t favor a ladder strategy, but I don’t think I would buy long and hold, either.
A
James A. Klotz responds:
Your point is well taken. We did not mean to imply that we would always opt for the “longest” bonds available, particularly, as you say, if the slope of the yield curve allows us to capture the lion’s share of income on a shorter-term bond.
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