long bond

Long Bond

A bond that matures in more than 10 years. When people refer to "the long bond," this typically is the 30-year U.S. treasury.

Notes:

Because they tie up money for such a long time, a long bond will usually pay investors a higher yield.

See also: 30-Year Treasury

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long bond

A debt security with a relatively long period remaining until maturity. Also called long coupon. Compare short bond.

What are the advantages and disadvantages of buying long bonds rather than short bonds?

The advantages of buying long bonds rather than short bonds are:

1. you get to keep attractive interest rates longer;
2. yields generally are higher on long bonds versus the yields you can obtain on short bonds;
3. price swings are more significant, and thus profits are more substantial when interest rates fall;
4. price swings are more dramatic when you hold a longer bond and its credit rating is upgraded, permitting it to trade at a lower yield to maturity regardless of what interest rates in general are doing.

The disadvantages of buying long bonds as opposed to short bonds are:

1. you are stuck with unattractive rates longer (unless you want to take your lumps and move on);
2. if the yield curve begins to take on a negative shape, or even if it simply begins to rise, as a holder of long bonds you probably will have much larger capital losses than you would have if you had chosen to buy shorter maturities instead;
3. price swings are more dramatic when you hold a deteriorating credit and the bond's maturity is longer.

Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD