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which has a higher yield; a three year government bond, or a 30 year? if they...

which has a higher yield; a three year government bond, or a 30 year? if they are both risk free securities why would there be a difference?

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Answer #1

A 30 year government bond will have higher yield. This is because it has a longer maturity period than a 3 year government bond and will have to go through a larger number of ups and down in the economy than the 3 year government bond. So, the higher yield is given on 30 year government bond to compensate for the different changes in the economy which it will go through and also due to longer maturity period, because your money is locked in for longer period of time. This is called maturity risk premium, which is included in the yield.

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