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Why would long term bonds be more risky now?

hnfong 4y ago
The same reason why banks are underwater -- rising interest rates will cause long term bonds to drop in value (because you can buy debt at a higher return/interest rate, so fixed interest rate bonds have to drop in price to compensate).
- thfuran 4y ago
  That doesn't matter if you hold them to term.
  - ars 4y ago
    Yes, it does matter because it means you made less money that you would have with other bonds of equal risk. That's exactly why their value goes down: They make you less money. Their value goes down exactly as much as the difference in how much money you could have made on other bonds. (i.e. you can take the loss now, in lower value, or take the loss at the end by earning less.)
    - thfuran 4y ago
      >They make you less money. No, they make you precisely as much money as they were ever going to, with the rates fixed at issue. That some other investment strategy turns out after the fact to have been a better option doesn't change that.
      - ars 4y ago
        Tell me, would you also say this in reverse? Let's say your treasury is worth more - are you going to ask the current (higher) value, or just sell it for what you originally were going to make?
        thfuran 4y ago
        In what situation are you suggesting that the US treasury is going to offer you extra money?
  - hnfong 4y ago
    In addition to what the others have already said in this thread - - the real return is lower (and can even be negative) if high inflation occurs during the period, and - if you do hold onto them no matter what, your money is locked into a long term asset for below market returns You can always tell yourself "it's fine", and perhaps it's really fine (for you, or whoever can afford to hold onto low interest bond for 10 years without doing anything with the money). I'm just saying there's a risk here. The fact that half of the banks in US are underwater due to this risk is quite on-topic too.
deleted 4y ago
[deleted]

The same reason why banks are underwater -- rising interest rates will cause long term bonds to drop in value (because you can buy debt at a higher return/interest rate, so fixed interest rate bonds have to drop in price to compensate).

thfuran 4y ago
That doesn't matter if you hold them to term.
- ars 4y ago
  Yes, it does matter because it means you made less money that you would have with other bonds of equal risk. That's exactly why their value goes down: They make you less money. Their value goes down exactly as much as the difference in how much money you could have made on other bonds. (i.e. you can take the loss now, in lower value, or take the loss at the end by earning less.)
  - thfuran 4y ago
    >They make you less money. No, they make you precisely as much money as they were ever going to, with the rates fixed at issue. That some other investment strategy turns out after the fact to have been a better option doesn't change that.
    - ars 4y ago
      Tell me, would you also say this in reverse? Let's say your treasury is worth more - are you going to ask the current (higher) value, or just sell it for what you originally were going to make?
      - thfuran 4y ago
        In what situation are you suggesting that the US treasury is going to offer you extra money?
- hnfong 4y ago
  In addition to what the others have already said in this thread - - the real return is lower (and can even be negative) if high inflation occurs during the period, and - if you do hold onto them no matter what, your money is locked into a long term asset for below market returns You can always tell yourself "it's fine", and perhaps it's really fine (for you, or whoever can afford to hold onto low interest bond for 10 years without doing anything with the money). I'm just saying there's a risk here. The fact that half of the banks in US are underwater due to this risk is quite on-topic too.

deleted 4y ago

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