Community Forex Questions
What is long term bond?
A long-term bond refers to a fixed-income security that has a maturity period typically exceeding 10 years. It is a type of debt instrument issued by governments, municipalities, or corporations to raise capital. Unlike short-term bonds, which have a maturity period of one to five years, long-term bonds offer a more extended repayment schedule.
Investors who purchase long-term bonds essentially lend money to the issuer and receive regular interest payments over the bond's lifespan. Upon maturity, the investor is repaid the original principal amount. The interest payments are typically fixed, meaning they remain the same throughout the bond's life.
Long-term bonds are subject to interest rate risk, as changes in market interest rates can affect their value. When interest rates rise, the value of existing long-term bonds decreases, and vice versa. This is because investors demand higher yields to compensate for the lower returns offered by older bonds.
Investors may choose long-term bonds as part of a conservative investment strategy, seeking a predictable income stream and a relatively lower level of risk compared to other investment options. However, they should carefully evaluate the issuer's creditworthiness, market conditions, and their own financial goals before investing in long-term bonds.
Investors who purchase long-term bonds essentially lend money to the issuer and receive regular interest payments over the bond's lifespan. Upon maturity, the investor is repaid the original principal amount. The interest payments are typically fixed, meaning they remain the same throughout the bond's life.
Long-term bonds are subject to interest rate risk, as changes in market interest rates can affect their value. When interest rates rise, the value of existing long-term bonds decreases, and vice versa. This is because investors demand higher yields to compensate for the lower returns offered by older bonds.
Investors may choose long-term bonds as part of a conservative investment strategy, seeking a predictable income stream and a relatively lower level of risk compared to other investment options. However, they should carefully evaluate the issuer's creditworthiness, market conditions, and their own financial goals before investing in long-term bonds.
A long-term bond is a debt security with a maturity period typically exceeding 10 years, issued by governments or corporations to raise capital. These bonds pay fixed or variable interest (coupon payments) periodically and return the principal upon maturity. Due to their extended duration, they are more sensitive to interest rate changes; when rates rise, bond prices fall, and vice versa, making them riskier than short-term bonds. However, they often offer higher yields to compensate for this risk. Investors, such as pension funds and insurance companies, favour long-term bonds for steady income and portfolio diversification. Government-issued long-term bonds, like U.S. Treasuries, are considered low-risk, while corporate bonds carry higher default risk but provide greater returns. Inflation and economic shifts also impact their performance, requiring careful analysis before investment.
Jul 05, 2023 19:37