What Is Thirty-Year Treasury?

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

Key Takeaways

  • Thirty-year treasury is a debt obligation backed by the U.S. Treasury that matures after 30 years.
  • Thirty-year treasury bonds are among the world’s most widely followed fixed-income assets.
  • Thirty-year treasury yields fluctuate based upon market demand and the general outlook for the economy.

Understanding Thirty-Year Treasury

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. However, the yield on treasury bonds does fluctuate based upon market demand and the general outlook for the economy.

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

Yield Curves and Long-Duration Bonds

The greater compensation associated with longer maturity bonds describes a situation with a normal yield curve. Under certain economic conditions, the yield curve may become flatter or even inverted, with shorter maturity bonds paying better interest rates than longer maturity 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 maturity bonds and toward shorter maturity bonds as investors park their funds in anticipation of better-yielding longer-term bonds down the road. The more the demand imbalance, the steeper the yield curve as the high demand for short maturity 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 longer maturity 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 maturities. When the yield on short-term bonds rises above those of long-term bonds, an inverted yield curve results.