Muni bond tool may provide dose of reality

Financial advisers have a new online tool to help 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 lets users stress-test muni bonds and see how they would fare when rates are rising. This summer, investors will be able to use the tool to stress-test muni bond mutual funds, too, said Robert Kane, founder of BondView. Rates are at a historical low, and once they rise, “many municipal bond investors may be shocked to see their holdings take a hit,” he said. “A 30-year bond at today's low interest rates could lose 30% to 35% in a rising-rate environment,” Mr. Kane said. For baby boomers who may be counting on their muni 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 muni bonds when rates are rising. But a 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,” he said. “It doesn't take a huge increase in rates for some potential losses to occur.” E-mail Jessica Toonkel at [email protected].