iShares Adds iBonds Muni ETF

iShares has added another ETF to its lineup of target maturity municipal bond funds. The rollout of the iShares iBonds Dec 2028 Term Muni Bond ETF (IBMQ) means that the iBonds municipal bond products can be used in 10-year laddering strategies, a typical time horizon for such approaches.

IBMQ coms with an expense ratio of 0.18% and lists on Cboe Global Markets, the parent company of ETF.com.

iShares has launched three iBonds ETFs in rapid succession in the last few weeks. The first two were the iShares iBonds Dec 2026 Term Muni Bond ETF (IBMO) and the iShares iBonds Dec 2027 Term Muni Bond ETF (IBMP).

These latest launches bring the municipal lineup of the iBonds family into line with the iBonds investment-grade corporate bond lineup in terms of years covered. Both series now cover the years 2019 through 2028. The whole iBonds family now has roughly $7.5 billion in assets under management, with $1.4 billion in the muni funds.

One Big Difference

The latest launches in the municipal family have some slightly different features though.

“We did not have muni iBonds going past 2025,” noted BlackRock Fixed Income Strategist Karen Schenone. “Part of the reason for that was that there are not that many noncallable bonds that get issued at past seven years.”

The underlying indexes of the newest iBonds muni products can include callable bonds ranging from those with call dates two years prior to their final maturity to those with call dates up to four years after the index’s final maturity date. For example, IBMQ’s index can include bonds with final maturity dates in 2032 as long as they have call dates in 2018.

As the funds’ underlying indexes near maturity starting five years out, the callable bonds see their weights capped and are then gradually removed from the indexes during monthly rebalances so that only the bonds maturing in the targeted year remain when the fund reaches its own maturity year. Previous iBonds products did not include callable bonds, and their inclusion adds to the diversification of the funds’ underlying indexes as well as reducing extension risk.

“We wanted to allow for the inclusion of callable bonds into the index, but we still wanted to have the same spirit of trying to track that particular calendar year of the market,” Schenone said, noting that additions to the iBonds muni ETF family for laddering purposes are one of the most frequent product requests she sees.

Contact Heather Bell at [email protected]