What is “long” Bonds
The long bond is the 30-year U.S. Treasury Bonds, bonds with maximum maturities issued by the U.S. Treasury.
Breaking down the “long” Bond
Long bond, like all U.S. Treasury bonds pay interest every six months and relies on the full power of the US Treasury as a result, long bonds have low default risk.
Considered one of the safest of securities, long bonds are among the most actively traded bonds in the world. They attract significant interest from international buyers over the uncertain global economic situation.
Yields are significantly price the government pays to borrow money for different lengths of time. For example, Treasury bonds 30,000 $2.75 per cent yield provides 825 $annual return on investment. And if held to maturity, the government will return the $30,000 to the holder of the bond.
The pros and cons of long bonds
In addition to the support of the U.S. Treasury, another important advantage of long securities bonds is their liquidity. Their market is large and extremely active, making them easy to buy or sell. The public can buy long bonds directly from governments, bypassing the broker’s bond. Long bonds are also available in many mutual funds.
Safety and low risk of long term bonds, however, contributes to their disadvantages. Their yield is usually relatively low compared to corporate bonds. Investors in corporate bonds, therefore, have the opportunity to earn more income from the main investments. The higher yield compensates investors for taking on the risk that the corporate Issuer will default on its debt obligations.
In addition, it is difficult to predict how the financial markets and the economy will perform over a 30-year period. Interest rates, for example, can change dramatically in a few years, so looks like a good yield at the time of purchase may not seem in 10 or 15 years as well. Inflation could reduce the purchasing power of the dollar invested in 30-year bonds. To offset these risks, investors usually demand higher returns—the value of 30-year bonds typically pay a higher yield than short-term bonds.
When interest rates rise, bond prices will go down, as new bonds can offer higher yields than existing bonds. Given the long bond maturities, their price is often reduced more significantly than bonds with shorter maturities. And foreign investors, long Treasury bonds carry currency risk since they are denominated in U.S. dollars.