What Are Long-Term Treasury Bonds?

Long-term Treasury bonds are U.S. government bonds that have maturities longer than 10 years. When you purchase a long-term Treasury bond, you’re basically agreeing to loan money to the federal government for an agreed-upon period of time, until the bond reaches maturity.

Because they are debt securities backed by the U.S. federal government, long-term Treasury bonds (also known as T-bonds) are considered to be practically risk-free, among the safest investments available. That’s because the federal government has taxing authority, and it can use that authority to raise money if needed to repay its debts.

When do long-term Treasuries mature? 

Long-term Treasury bonds have longer maturities than other Treasuries—they mature between 10 and 30 years from the date of purchase. They are called “long-term” to differentiate them from short-term Treasury bonds (also known as Treasury bills) which can have maturity dates of three years or less from the date of purchase. Medium-term bonds, or Treasury notes, mature between three and 10 years. 

If you’re planning to invest money that you won’t need to access for 10 years or more, a long-term Treasury bond can be a safe option. Treasury bonds offer a guaranteed return on investment, so they can work well for strategically timed investments. 

For instance, if you know you’ll need the funds to cover a child’s college education in 10 years, a 10-year Treasury bond will offer some guaranteed income and practically no risk of loss. Or if you plan to purchase a home in 15 years, you can time your investment in Treasury bonds to correspond with the time when you expect to need the money. 

How much can you earn with Treasury bonds? 

Purchasing a Treasury bond means you are effectively loaning money to the federal government. Until the bond matures, the government uses your investment to fund its programs and projects. In return for the favor, the government pays you interest.

The interest you’re paid for a T-bond isn’t the same as an interest rate on a CD or savings account. Regardless of the price a bond is trading for in the market, investors earn a set percent of the face value of the bond, paid out semiannually. This rate is known as the coupon rate.

For instance, if you purchase a $100,000 Treasury bond with a 2 percent coupon rate, the bond will pay out $2,000 on an annual basis. Based on the coupon rate, T-bond owners earn semi-annual interest payments until the bond matures. When it reaches maturity, you will be paid back the face value of the bond. (Longer term Treasury bonds typically have higher interest rates than Treasuries that mature in shorter periods of time. The long-term average interest rate for a 30-year Treasury bond is around 5 percent, but the rate as of May 2020 was closer to 1 percent.) 

If an owner chooses not to hold the T-bond until it reaches maturity, he or she can also trade the bond in the market. When the bond gets closer to maturity, and there are fewer payments left to be made, its yield will fall. As a result, its market value falls as well.

Why invest in long-term Treasury bonds?

T-bonds do not offer opportunities for spectacular gains in the same way that stocks do, but they do offer safety and a predictable profit. Many investing experts recommend including some cash equivalents—usually investments from the bond market—in a balanced portfolio. And because of their status as highly secure investments, Treasury bonds can be a good choice.

Many investors use T-bonds to keep some of their retirement savings free from risk, to provide a steady income after retirement, or to set aside savings for college education or other major expenses. For investors who want to keep their money in a safe, cash-like investment, T-bonds offer a smart option. Others who invest in the stock market but want to add less risky investments to their portfolio may choose T-bonds for balance.

Is there any risk with long-term Treasury bonds? 

If you plan to hold a bond until it reaches maturity, you have a known yield that is locked in and guaranteed and you will get the amount you invested back when the bond matures. The percent interest you earn per year will not change over the period you own the bonds.

However, long-term bonds do carry some price risk. If you are earning 2 percent a year, but interest rates go up overall, and you want to sell your bonds on the market, the price you’re able to sell the bond for may be lower. 

Still, because of the long-term nature of T-bonds, you have plenty of time to monitor interest rates.

How to invest in Treasury bonds

Purchase Treasury bonds directly from the Treasury Department

There are a few different ways to purchase T-bonds First, you can purchase them directly from the federal government by opening an account at TreasuryDirect. There, Treasury bonds are sold at monthly online auctions. The price and yield of each bond are determined during the auction. 

Purchase Treasury bonds through the secondary market 

Investors can also purchase Treasury bonds in the secondary market from banks or brokers who purchased them directly from the government. Before a bond can be sold on the secondary market, the original auction buyer must hold the bond for at least 45 days.

Invest in a bond fund

You can also purchase bond funds, which are like mutual funds but hold a variety of different bonds instead of stocks. With bond funds, you pool your money with that of other investors, and a professional manager invests the entire pool of money based on his or her opinion of the best opportunities at the moment. If you want to purchase bond funds, you can buy shares from an investment broker, just like you would buy shares of a stock mutual fund. (The Acorns conservative portfolio includes government bond funds with shorter term bonds.)  

Investing in long-term Treasury bonds can be a secure way to earn a predictable return on your investment, protect your cash, and plan for future needs for cash.