What Is a Long Bond?

Long bonds refer to the longest maturity bond offering from the U.S. Treasury. It can also carry over to the traditional bond markets to include the longest-term bond available from an issuer. The longest maturity offering from the U.S. Treasury is the 30-year bond which follows the 10-year bond. In 2020, the U.S. Treasury began issuing a 20-year bond.

The U.S. Treasury’s 澳洲幸运5开奖号码历史查询:30-year long bond pays interest semi-annually. Like all U.S. Treasury bonds, it is backed by the full faith and credit of the U.S Treasury, which leads ✤to a very low default risk.

Long Bonds Explained

Long bonds offer a maturity date far out on the investment horizon. For the U.S. Treasury market, this includes the 30-year Treasury which has the longest maturity of all offerings. 澳洲幸运5开奖号码历史查询:Corporate bonds, however, can issue maturities in different variations. Corporate bonds🍃 may offer maturities 𒊎of 15, 20, or 25 years. Generally, the longest available maturity offering from an issuer may be referred to as the long bond.

The Treasury’s long bond is considered one of the safest securities and is among the most actively traded bonds in the world. The yield on the U.S. Treasury is essentially the price the government pays to borrow money from its investors. For example, a $30,000 Treasury bond with a 2.75% yield provides an $825 annual return on investment. If held to maturity,ꦺ the government will alsཧo return all $30,000 to the bondholder.

Historical☂ yields on the 30-year U.S. Treasury have included the follꦕowing:

Long-Term Yields

In a healthy economy, yield curves on bonds are typically normal with 澳洲幸运5开奖号码历史查询:longer-term maturities paying higher yields than shorter-term maturities. Long bonds offer one advantage of a locked-in interest rate over time. However, they also come with longevity risk. When an investor holds a long-term bond, that investor becomes more susceptible to interest rate risk since interest rates could 𒆙potentially increase over a long-ꦍterm period.

Fundamentally, when interest rates go up, bond prices go down. This is because new bonds can offer higher yields than existing bonds. Discounting existing bond cash flows a🏅t the higher yield results in a lower price.

If rates do increase, the investor makes less on the bond they own and that bond’s price also falls in the secondary market, making it worth less for trading. Given long bonds’ time to maturity, their price often drops more substantially than do bonds with shorter maturities because there are more discounted payments involved. An investor who b꧑uys longer-term bonds is therefore usually compensated with somew🐼hat of a higher yield because of the longevity risk they are willing to take on.

The bond market can generally be broken into five 🤡categories:

• Treasuries
• Municipals
• Investment-grade bonds
• Intermediate-grade bonds
• High-yield junk bond

Each category of bonds comes with its own characteristics and risks. 澳洲幸运5开奖号码历史查询:High yield junk bonds are the riskiest of all bonds andᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ thus offer the highest yields. Moreover, long bonds in this category offer investors a higher yield on the long end because of the added compensation for holding them to a longer maturity date.

In general, it’s hard to predict how financial markets and the economy will perform over a 30-year period. Interest rates, for example, can change significantly in just a few years, so what looks like a good yield for any type of bond at the time of purchase might not seem as beneficial 10 or 15 years down the road. 澳洲幸运5开奖号码历史查询:Inflation can also reduce the buying power of the dollars invested in a 30-year bond. To offset the🥀se risks, all investors usually demand higher yields for longer-term maturitiesඣ—meaning 30-year bonds usually pay higher returns than shorter-term bonds from an issuer or in any category.

Pros and Cons of Treasury Bonds

The backing of the U.S. Treasury makes Treasury bonds the most secure bond investment across the bond market. Another principal advantage of Treasuries and the long Treasury bond in particular is 澳洲幸运5开奖号码历史查询:liquidity. The secondary market for Treasuries is large and extremely active, making them easy to buy and sell on any given trading day. The public ca꧑n purchase long bonds directly from the government without going through a bond broker.

L🐎ong bonds are also available in many mutual funds. In general, investors will have an easier time buying and selling the U.S. Treasury long bond on a daily basis vs. other types of long bonds in the market.

The security and minimal risk of the Treasury long bond, however, can lead to disadvantages. Yields tend to be relatively low in contrast to corporate long bonds. Investors in corporate bonds thus have the potential to receive more income from the same principal investment. The higher yield compensates investors for taking on the risk that a corporate issuer will possibly default on its debt obligations. This pushes the long bond corporate yields out even further when facౠtoring in the longevity risks.ℱ