Bond Ladder
Definition
A bond ladder is a strategy that spreads investments across multiple maturities (rungs). As each bond matures, you reinvest into a new long-dated rung, balancing income, liquidity, and interest-rate risk.
Key Takeaways
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Smooths reinvestment risk and reduces duration swings.
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Creates predictable cash flows at each maturity.
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Works with FGN, FGN Savings Bonds, Sukuk, selected corporates, and T-Bills.
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Can target goals (e.g., 1–5 year ladder for liquidity, or longer for income).
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Reinvest maturing rungs to maintain the ladder length.
How to Build (quick)
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Pick a ladder length (e.g., 1–5 years).
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Allocate equally across rungs (Year 1…Year 5).
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As Year 1 matures, reinvest into Year 5 to roll the ladder.
Example (illustrative)
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Year 1: T-Bill / short FGN
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Year 2–3: FGN Savings Bond / short FGN
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Year 4–5: FGN / Sukuk (longer coupons)
Result: annual maturities for cash needs, with steady coupon income.
Common Pitfalls
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Over-concentrating in one maturity or issuer.
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Forgetting to reinvest maturing rungs (ladder collapses).
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Ignoring fees/taxes and secondary-market liquidity.
Related Terms
Duration · Reinvestment Risk · Coupon · Yield to Maturity (YTM) · FGN Savings Bond · Sukuk
