DEFINITION of 30-Year Treasury
The 30-Year Treasury is a U.S. Treasury debt obligation that has a maturity of 30 years. The 30-year Treasury used to be the bellwether U.S. bond but now most consider the 10-year Treasury to be the benchmark.
BREAKING DOWN 30-Year Treasury
The United States government borrows money from investors by issuing debt securities through its Treasury department. Debt instruments that can be purchased from the government include Treasury bills, notes, and Treasury Inflation-Protected Securities (TIPS). T-bills are marketable securities issued for terms less than a year, and Treasury notes are issued with maturities from two to 10 years. TIPS are marketable securities whose principal is adjusted by changes in the Consumer Price Index (CPI). When there is inflation, the principal increases. When deflation sets in, the principal decreases. U.S. Treasury securities with longer term maturities can be purchased as U.S. Savings bonds or Treasury bonds.
Treasury bonds are long-term debt securities issued with a maturity of 30 years from the issue date. These marketable securities pay interest semi-annually, or every six months, until they mature. At maturity, the investor is paid the face value of the bond. The 30-year Treasury will generally pay a higher interest rate than shorter Treasuries to compensate for the additional risks inherent in the longer maturity. However, when compared to other bonds, Treasuries are relatively safe because they are backed by the U.S. government.
The price and interest rate of the 30-year Treasury bond is determined at auction where it is set at either par, premium, or discount to par. If the yield to maturity (YTM) is greater than the interest rate, the price of the bond will be issued at a discount. If the YTM is equal to the interest rate, the price will be equal to par. Finally, if the YTM is less than the interest rate, the Treasury bond price will be sold at a premium to par. In a single auction, a bidder can buy up to $5 million in bonds by non-competitive bidding or up to 35 percent of the initial offering amount by competitive bidding. In addition, the bonds are sold in increments of $100 and the minimum purchase is $100.
U.S. Savings bonds, specifically, Series EE Savings bonds, are non-marketable securities that earn interest for 30 years. Interest isn’t paid out periodically. Instead, interest accumulates, and the investor receives everything when s/he redeems the savings bond. The bond can be redeemed after one year, but if they are sold before five years from the purchase date, the investor will lose the last three months' interest. For example, an investor who sells the Savings bond after 24 months will only receive interest for 21 months.
Because the United States is seen as a very low-risk borrower, many investors see 30-year Treasury interest rates as indicative of the state of the wider bond market. Normally, the interest rate decreases with greater demand for 30-year Treasury securities and rises with lower demand. The S&P U.S. Treasury Bond Current 30-Year Index is a one-security index comprising the most recently issued 30-year U.S. Treasury bond. It is a market value weighted index that seeks to measure the performance of the Treasury bond market.