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High yields pay you to wait, but a small rise in rates can wipe out a year of income. Here is the one-year math, how the main long-term Treasury ETFs differ, and how to size the bet.
Long-term Treasury bonds look most tempting when yields are high. A 30-year bond paying 5% hands you that income every year while you wait, and if rates fall, its price jumps too. The catch is the other direction. Rates don't need to rise much before the price drop eats a whole year of interest.
The short answer: Long-term Treasury bonds can be worth buying when yields are high, as long as your time frame fits. Held to maturity, they lock in that yield for decades. Judged over a single year, they are a bet that yields will fall, because a rise of about a third of a percentage point can erase a full year of interest on a 30-year bond.
With bonds, the price you pay sets most of what you earn. J.P. Morgan Asset Management has found that the yield at the time of purchase has historically explained most of a bond investment's return over the following five years. Buy at 5% and the coupon does a lot of the work. Buy at 2% and there is very little cushion.
A sharper measure is the real yield, what the bond pays after inflation. The cleanest read comes from TIPS, Treasury bonds whose principal rises with the Consumer Price Index, so their yield is roughly what you earn above inflation. When long TIPS pay more than 3% on top of inflation, which has been rare over the past two decades, long Treasuries pay a real return you can feel.
Compare a regular Treasury with a TIPS of the same maturity and you get breakeven inflation, the inflation rate the market is pricing in. This number is where the whole debate over long bonds lives. If actual inflation drifts back toward the breakeven rate, long bonds tend to rally and you collect a price gain on top of the coupon. If inflation stays well above it, your real return shrinks. Our piece on whether TIPS actually protect against inflation covers how that protection works in practice.
Your time frame matters a lot here. Hold an individual bond to maturity and the high yield is locked in, whatever the price does along the way. Most private investors judge results over one or two years, though, and over that window things get harder.
Duration measures how much a bond's price moves when its yield changes by one percentage point. A 30-year Treasury bought at a 5% yield has a duration of about 15.5, so a one-point rise in its yield knocks roughly 15% off its price. A 10-year bond has about half that sensitivity. Our guide to bond duration and your portfolio explains it step by step.
The table shows hypothetical one-year total returns (price change plus interest) for a bond bought at par with a 5% coupon. It assumes yields move once, right after purchase, and then stay put for the year. These figures illustrate the math. They are not forecasts.
| Change in yield after purchase | 10-year Treasury, 1-year return | 30-year Treasury, 1-year return |
|---|---|---|
| Down 1.00 point | +12.5% | +22.1% |
| Down 0.50 point | +8.7% | +13.1% |
| No change | +5.0% | +5.0% |
| Up 0.50 point | +1.5% | -2.2% |
| Up 1.00 point | -1.9% | -8.7% |
The first thing that jumps out is the lopsided payoff. If the 30-year yield falls one point, the bond returns about 22%. If it rises one point, the loss is about 9%. The coupon softens the downside, so the gain is roughly two and a half times the loss for a move of the same size.
The second thing is how thin the cushion is. A rise of only about 0.34 percentage points wipes out the 30-year bond's full year of interest. The 10-year can absorb about 0.72 points before its return for the year hits zero.
Zero isn't the right benchmark anyway. A one-year Treasury bill held to maturity carries no price risk. When a bill pays 4.5% and a 30-year bond pays 5%, the long bond falls behind the bill after a yield rise of just 0.03 percentage points. Over a one-year horizon, the coupon alone doesn't justify the risk. What justifies it is a real expectation that yields will turn lower.
Long bonds can also fail as a hedge. In 2022, when inflation was the market's main worry, the iShares 20+ Year Treasury Bond ETF (TLT) lost roughly 30% while the S&P 500 fell about 18%. When inflation is the shock, long Treasuries stop cushioning a stock sell-off. These are past results and don't predict future returns.
Energy-driven inflation can fade quickly. When a jump in inflation comes mostly from oil and gasoline while core inflation (which leaves out food and energy) stays calm, prices can cool as fast as they heated up.
A softer job market helps too. Weak hiring, rising unemployment and slower wage growth ease pressure on service prices, and over time they push the Federal Reserve toward rate cuts.
The Treasury can lend a hand. Through its buyback program it repurchases older long bonds, which trims the supply of long debt in the market. The effect has tended to be modest, so treat it as a mild tailwind.
Strong auctions are a tell. When new 10-year and 30-year bonds sell easily at high yields, buyers who waited years for these levels are showing up.
Crowded trades can snap back. When a large share of fund managers bet against Treasuries at the same time, any surprise can force them to close those bets together, and prices jump the other way.
The case against buying is just as serious, and it starts with the Fed. While the central bank is still raising rates and markets expect more hikes, a lasting rally in long bonds is hard to get going.
Deficits matter. When the government runs large budget deficits, it has to sell more bonds, and investors demand a higher term premium. The term premium is the extra yield you ask for to hold one long bond instead of rolling over short bills for the same period. The New York Fed publishes an estimate of it. While it climbs, long yields can rise even if the Fed does nothing.
Treasuries also compete for money. When bond yields rise in Japan or Germany, some investors who used to buy U.S. debt can earn more at home. Tech firms borrowing to build data centers add even more long bonds for the market to absorb.
The biggest bond managers move slowly. When they turn less negative on long Treasuries, they usually trim their underweight positions first, and heavy buying comes later, if at all.
Both outcomes stay realistic. That is why how you buy matters as much as whether you buy.
For most private investors, a fund is the simplest and cheapest way in. The most useful yardstick for comparing funds is the SEC yield, a standardized 30-day yield that is already net of the fund's expenses. Skip the trailing 12-month distribution yield. It reflects coupons on older bonds issued when rates were lower, so it understates what the fund earns going forward.
| Fund | What it holds | Rate sensitivity vs TLT | Expense ratio | Main trade-off |
|---|---|---|---|---|
| TLT (iShares) | Treasuries, 20+ years | Benchmark | 0.15% | Easiest to trade in size, higher fee |
| VGLT (Vanguard) | Treasuries, 10+ years | Slightly lower | 0.03% | Similar exposure at a lower cost |
| SPTL (SPDR) | Treasuries, 10+ years | Slightly lower | 0.03% | Similar exposure at a lower cost |
| TLH (iShares) | Treasuries, 10 to 20 years | About a fifth lower | 0.15% | Smaller swings, similar yield |
| IEF (iShares) | Treasuries, 7 to 10 years | About half | 0.15% | Smaller swings, smaller gains if yields fall |
| EDV (Vanguard) | Zero-coupon Treasuries (STRIPS) | About 1.5 times | 0.05% | Bigger moves in both directions |
| ZROZ (PIMCO) | Zero-coupon Treasuries, 25+ years | Close to 2 times | 0.15% | Largest swings, little extra yield |
| LTPZ (PIMCO) | TIPS, 15+ years | Moves with real yields | 0.20% | Helps if inflation runs hot, hurts if real yields climb |
| VCLT (Vanguard) | Corporate bonds, 10+ years | Slightly lower | 0.03% | Higher yield, adds credit risk |
| SPLB (SPDR) | Corporate bonds, 10+ years | Slightly lower | 0.04% | Higher yield, adds credit risk |
Expense ratios come from fund issuers. Rate sensitivity is approximate and shifts as each fund's holdings change.
TLT, the iShares 20+ Year Treasury Bond ETF, is the largest long-Treasury fund and the usual yardstick. VGLT and SPTL hold Treasuries with 10 or more years left, so they react a little less to rates, and they charge a fifth of TLT's fee. When the long end of the yield curve is flat and 20-year bonds pay about as much as 30-year bonds, TLT's extra rate risk isn't paid for. Its real edge is trading volume, which matters for large, fast trades.
TLH (10 to 20 years) moves roughly a fifth less than TLT, often with a similar yield. IEF (7 to 10 years) moves about half as much for a slightly lower yield. Smaller losses when yields rise come with smaller gains when they fall.
These funds hold zero-coupon Treasuries called STRIPS, which pay everything at maturity. That makes them far more rate-sensitive than TLT. Because the very longest bonds often yield a little less than 20-year bonds, the extra risk doesn't necessarily bring extra income.
LTPZ holds long TIPS, so its price follows real yields and its bonds' principal rises with inflation. It tends to beat TLT when inflation runs above what the market expects and lag when real yields keep climbing. Its SEC yield includes the inflation adjustment, so don't compare it directly with a regular Treasury fund.
These corporate bond funds yield more, but the extra pay for default risk, called the credit spread, is sometimes thin. If the economy slows, spreads can widen and eat into the gain from falling rates, which makes them a less direct bet on lower yields.
Funds like TMF aim for three times the daily return of long Treasuries. In 2022 TMF lost about 70%. For a trade that depends on timing a turn in rates, that structure is very fragile.
A bond fund keeps replacing bonds that drift below its maturity range, so its rate sensitivity stays roughly constant and you can't lock in a yield the way you can with a single bond. Its one-year result comes down to its SEC yield and how rates move. Issuers also measure duration slightly differently, so small gaps between funds don't mean much.
Start with your time frame, then pick the tool. If you plan to hold until maturity or are matching bonds to a long-term need such as retirement income, individual Treasuries lock in the yield you buy at. Funds can't. If you judge the result over a year, a long bond is a bet on falling yields, and a one-year bill is the alternative to beat. For a wider view of where bonds fit, see our private investor's guide to building a bond portfolio.
Build the position in stages. While yields are still trending up, buying everything on one day is a big bet on timing. Spread the purchases around scheduled events such as Fed meetings, the Treasury's quarterly refunding announcement, inflation reports and long-bond auctions.
Match maturity to your comfort with swings. Shorter maturities move less, zero-coupon funds magnify everything and tend to fit only as a small slice, and a TIPS fund suits investors whose main fear is inflation staying high.
Size the position by what you could lose. Using the same hypothetical math, putting 10% of a portfolio into a 30-year Treasury means a one-point rise in yields costs the whole portfolio a bit under 1% over the year, and a one-point drop adds about 2.2%. Pick the loss you can live with first, then work out the allocation.
Decide in advance what would change your mind, and write it down:
Then review the position on a schedule. Clear portfolio rebalancing triggers keep a long-bond bet from quietly growing into something you didn't plan for.
To see how a long-bond position would change the risk and rate sensitivity of what you already own, the 8FIGURES AI Investment Advisor can show it based on your connected accounts.
High yields pay you to wait. They won't save you if inflation proves stickier than the market expects. Settle your time frame and your maximum loss first, and the choice between a bond and a fund follows from there.
This article is for educational purposes only and is not personalized investment advice. Hypothetical scenarios are illustrations, not forecasts. Past performance does not guarantee future results. Fund expense ratios and durations change over time, so check each fund's current documents before investing.
Managing your investments has never been easier!