New muni bond tool could shock clients

Advisers have a new online tool to help them show clients what effects rising interest rates will have on their municipal bond holdings.
BondView LLC, which operates a free site for muni bond investors, has launched a free tool that enables users to stress-test municipal bonds and see how they would fare in a rising-interest-rate environment. This summer, investors will be able to use the tool to stress-test municipal bond mutual funds, too, said Robert Kane, founder of BondView.
Interest rates are at a historical low, and once they rise, “many municipal bond investors may be shocked to see their holdings take a hit,” Mr. Kane said. “A 30-year bond at today’s low interest rates could lose 30%-35% in a rising-rate environment,” he said. For baby boomers who may be counting on their municipal bonds to help fund their retirement, that sort of haircut could be a real eye-opener.
Advisers have their own tools and formulas to stress-test municipal bonds in a rising-interest-rate environment. But any tool that clients can access for free will help, said Paul Jacobs, a certified financial planner with Palisades Hudson Financial Group LLC, which manages more than $1 billion in assets. “You have investors out there who are reaching for yield who don’t understand the risk with intermediate- to long-term bonds,” Mr. Jacobs said. “It doesn’t take a huge increase in rates for some potential losses to occur”