The advantages of buying long bonds rather than short bonds are:
- you get to keep attractive interest rates longer;
- yields generally are higher on long bonds versus the yields you can obtain on short bonds;
- price swings are more significant, and thus profits are more substantial when interest rates fall;
- 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:
- you are stuck with unattractive rates longer (unless you want to take your lumps and move on);
- 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;
- price swings are more dramatic when you hold a deteriorating credit and the bond's maturity is longer.
Thirty-year bonds issued by the US Treasury are referred to as long bonds. The interest rate on the long bond is typically but not always higher than the rate on the Treasury's shorter term notes and bills.
The rate on the most recently issued bond is the basis for pricing other long-term bonds and setting other financial benchmarks.