A long bond is a bond investment with a term of 10 years or more, and may refer specifically to the 30-year US bond. It is a safe and stable investment with a fixed interest rate and guaranteed return of principal, backed by the stability of its issuer.
A long bond describes any bond investment with a term of 10 years or more. Sometimes, the term “long bond” may be used to refer specifically to the 30-year US bond. A bond is a type of investment much like an IOU.
When you buy a stock, you are buying partial ownership of a company. The stock gives you a share of the company in exchange for your investment. When you buy a bond, you are not buying a part of the company, but rather lending the company money, with the promise that it will pay you back on a certain date with a specific amount of interest.
A long bond is a bond purchased by a government, corporation, federal agency, or other issuer with a maturity date of 10 years or more. The maturities of bonds may vary, but must be a “long-term” investment. Corporate bonds must have a maturity of at least five years. US Treasury bills, the kind most people are familiar with, must have a maturity of 10 years or more. For this reason, all US Treasury bills can be called long bonds.
A long bond tends to be a very safe and stable investment. Interest rates for bonds tend to be higher as the bond’s maturity lengthens. Because of this, a long bond will tend to have a higher interest rate than a shorter bond. The long bond is a very safe, or secure, investment for several reasons.
The first reason an investment in long bonds is safe is that the capital investment is secured. Some investments, such as stocks, mutual funds or precious metals, may decrease in value over time of the investment. A bond guarantees that your initial investment, or principal, will be returned to you on the maturity date. A bond cannot lose value.
The second reason a long bond is a safe investment is that the interest rate is fixed. Once you buy a bond, it will always be worth the final price at maturity. It doesn’t matter if the stock market or interest rates go up or down, the bond will be worth its final price on the maturity date.
A long bond is also very safe because it is backed by the stability of its issuer. A US Treasury bond is repaid based on US government resources. As long as the country is still outstanding at the time the bond matures, the bond will pay for your investment. A long bond may not be as exciting an investment as playing the stock. There may be other investment opportunities that have the potential for a higher return, but a long bond is a safe and stable investment that will provide a long-term return with rock-solid collateral.
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