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What is a 30-Year Treasury?

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  • Written By: Jennifer Voight
  • Edited By: Jacob Harkins
  • Last Modified Date: 03 July 2018
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    2003-2018
    Conjecture Corporation
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When the U.S. government wants to raise capital or pay off debt, it will issue government debt called treasury bills, notes, or bonds, in return for a promise to pay the face value, plus interest, within a specific period of time. The longest maturing treasury security is the 30-year treasury bond, also called a long bond or T-bond. Since 30-year treasury bonds are backed by the federal government, they are considered low-risk investments. Consequently, T-bond interest rates are generally lower than stock interest rates most of the time. When compared to shorter-term treasury securities, 30-year treasury bonds pay higher interest rates because the longer maturity exposes an investor to more risk.

A 30-year treasury bond is considered fairly liquid investments, meaning it can be converted to cash easily. Treasury bonds pay fixed interest every six months and may be traded in the secondary market prior to maturity or held to maturity and cashed in for principal. Interest earned on 30-year treasury bonds is subject to federal income taxes but is exempt from state and local taxes.

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The 30-year-treasury bond was considered the bellwether, or benchmark indicator, of the economy, in the 1980s and 1990s. It was replaced as a benchmark by the 10-year treasury note in the early 2000s. The 30-year treasury bond was not issued between 2001 and February 2006, but returned due to its popularity with pension fund managers and so the government could once again pay down debt. Since its re-issuance, the 30-year treasury has been issued quarterly.

Financial analysts may look to the treasury-bond yield curve as an economic indicator. The yield curve shows the relationship between interest rates and maturity time on bonds.

Usually, longer-term bonds such as the 30-year treasury have a higher interest rate than shorter-term bonds. Longer maturities expose investors to more potential risks, resulting in a higher interest rate. A yield curve that reflects this is normal and typically indicates a healthy economy.

When the yield curve is inverted, this indicates long-term securities are bringing lower interest rates than short-term securities. One possibility is that more investors than usual are buying bonds. When investor confidence in the market lags, people flock to safer investments like bonds. In an uncertain economy, investors do not want to invest money for long periods, so they buy short-term bonds instead of long-term bonds like 30-year treasuries. It is interesting to note that many U.S. recessions have been preceded by an inverted yield curve.

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