Treasury bonds are the longest-maturity obligations issued by the U.S. Treasury, currently offered with 20-year and 30-year maturities. Like T-notes, they pay a fixed semiannual coupon and are backed by the full faith and credit of the U.S. government. Because of their long duration, T-bonds are highly sensitive to interest rate changes — a characteristic that makes them attractive for hedging and speculative purposes but risky for conservative investors seeking stable principal values.
T-bonds are quoted in 32nds of a dollar, the same convention as T-notes. A price of 105-08 means 105 and 8/32 percent of par, or $1,052.50. The 30-year bond yield is often used as the long-term risk-free rate in financial models and pension fund liability matching.
T-bonds serve important roles in institutional portfolios: pension funds and insurance companies use long bonds to duration-match their long-dated liabilities. They are also a key vehicle for speculating on interest rate direction — investors who anticipate falling rates buy T-bonds to profit from price appreciation.
Interest is federally taxable but state and local tax-exempt, consistent with all Treasury securities. Capital gains from price appreciation are fully taxable at both federal and state levels.
> Exam tip: On the Series 7 and Series 65, know that T-bonds have the highest duration among Treasury coupon securities, making them the most volatile with respect to interest rate changes. For CFP and Series 65/66, understand how T-bonds are used in liability-driven investing (LDI) and immunization strategies.