for our deposits, we assume that 70% of our customers are not interest-rate driven (ie their decision to redeem is not effected by changes in interest rates) and 30 % of our customers are interest rate driven.
so for the ones that are not interest-rate driven, we fund with one-month overnight rates, because they could redeem whenever so we always have to have funds ready. but for the ones that are interest-rate driven, we fund with bond ladders.
can someone plz explain how bond ladders work. and also, why can we invest longer when our customers are interest-rate driven. what if rates were to go up, wouldnt that increase the chance they redeem, and in that case, shouldn’t we need to have funds ready? thanks.
