50 year Bond

[Plumbline]

What do we think about this possibility and how would it, if at all, affect the way the PP uses the long bond portion of the mix?

http://www.cnbc.com/id/44426451


Hope everyone has a great weekend.

[Indices]

I doubt it would make  much of a difference. It would be superior to a 30 year, but only marginally. It would have a slightly higher coupon rate.

[melveyr]

I doubt it would make  much of a difference. It would be superior to a 30 year, but only marginally. It would have a slightly higher coupon rate.

The coupon rate would only be slightly higher, but I think the duration would still be significantly greater. A cash flow being discounted from 50 years in the future is far more sensitive to changes in interest rates than a cash flow from 30 years in the future.

[stone]

melveyr, for UK gilts, 50years persistently have slightly lower coupons than 30years. Clive once put up some links with bond price calculators. Those showed that the duration of 50year gilts (or the undated perpetual gilts) was only slightly longer than for 30year gilts. The curve of duration versus time to maturity plateaus out with coupon paying bonds (if zero coupon then duration (ie interest rate price sensitivity) and time to maturity are the same thing).
http://en.wikipedia.org/wiki/Bond_duration