Thirty-Year Treasury

A thirty-year treasury is a U.S. Treasury debt obligation that matures after 30 years.

Thirty-year treasury bonds are among the world’s most widely followed fixed-income assets. All treasury bonds receive the backing of the U.S. Treasury, placing them among the safest and most popular investments among investors worldwide. Since most debt issuances come from institutions or individuals with a higher risk of default than the U.S. government, interest rates for treasury bonds are unlikely to outstrip rates on other bonds of similar duration. The yield on treasury bonds does fluctuate based upon market demand and the general outlook for the economy, however.

The main risk associated with treasury bonds involves changes to prevailing interest rates over the bond’s life. If interest rates rise during the duration of a bond, the bondholder misses out on higher returns than the ones earned on the current holding. In compensation for this, bonds with longer durations generally carry higher yields than shorter-duration bonds issued at the same time. Thirty-year treasuries are the longest-duration bonds offered by the federal government, and therefore deliver higher returns than contemporary 10-year or three-month issues.

The greater compensation associated with longer-duration bonds describes a situation with a normal yield curve. Under certain economic conditions, the yield curve may become flatter or even inverted, with shorter-duration bonds paying better interest rates than longer-duration bonds. The normal yield curve generally implies investors predicting economic expansion and an expectation that interest rates on long-term debt will rise. That shifts the demand away from longer-duration bonds and toward shorter-duration bonds as investors park their funds in anticipation of better-yielding longer-term bonds down the road. The more this demand imbalance takes place, the steeper the yield curve as the high demand for short-duration bonds depresses yields and bond issuers raise yields on longer-term bonds in an attempt to attract more investors.

When investors suspect poor economic times ahead and falling interest rates, the situation can invert. High demand for long-duration bonds at reasonable present rates and low demand for short-term debt that bondholders expect to reinvest into a falling interest rate environment can cause a rise in short-term rates and a fall in long-term rates. When that happens, the yield curve becomes more shallow as the difference in interest rates becomes less pronounced between bonds of different durations. When the yield on short-term bonds rises above those of long-term bonds, an inverted yield curve results.