Which is better for bonds, short-term or long-term investment horizon?

Question

we are tasked to make a debate regarding the two investment horizons. which of these two is more desirable over the other?

and Why?

Answer 1

It depends on what the interest rates are on the bonds.  If you can find a long term bond paying sufficiently higher interest than a short term bond, it would be a better buy.  Currently, interest rates on both short and long term bonds are c**p and neither is anything other than a loosing proposition except for the bond issuer.

It is generally recommended that a person keep at leat 25% of ones portfolio in bonds.  When Ben Graham made that recommendation however the Fed was not giving money away as it is now.  But if one wishes to keep to that recommendation,  one certainly should go with short term bonds in today's market.  30 year U S bond currently yields about 4.6%.  2 year note 2.8%.  Inflation is running at 6 to 8% depending on who you do not believe.   Eventually, the Fed is going to have to stop bailing out all of these speculators and interest rates will be raised again to a more rational level.  That will be the time to go long.

Answer 2

It depends on what interest rates are expected to do.  Short term bonds are usually less sensitive to rises in interest rates.  If you expect rates to go down then longer term bonds are probably better, rates go down, price goes up.  It also depends on the convexity and duration of the bond (And duration doesnt mean the maturity of a bond) One strategy is to buy a portfolio of bonds with laddered maturities.  When the first bond matures then replace it with a bond with the longest maturity in your ladder.