Has a bond ever been worth more than its longer term bond?

Bonds are sold with discounts and premiums, depending on face value and interest rates. A $1000 bond that pays 2% is worth less than $1000 that pays 3%. So if you buy the 2% bonds they would be discounted to $900 or if you have a bond that pays 5% for $1000 face value it would be worth more than $1000. Number of years is not in that equation.

@Tropical_Willie Is the example you gave a zero coupon bond? What about the normal ones?

A zero-coupon bond is a debt security instrument that does not pay interest. You pay $900 but the face value is $1000 in 5 years there is no interest paid until you turn it in in 5 years. (This is all from college classes 46 years ago).

Once you buy a bond, its value depends on the general interest rate. Suppose you buy a bond that pays 5% interest. If the general market interest rate falls to 2%, the value of the bond increases. A longer term bond will increase in value by a greater amount, because it pays the higher interest rate for a longer time.

By the same reasoning, if the general market interest rate increases beyond the bond return rate then the value of the bond decreases and the value of longer term bonds will decrease more, because they lock in the lower rates for a longer period of time.

@RedDeerGuy1 It’s called an inverted yield curve, and it does happen, not a lot but often enough that most bond traders have experienced it. What an inverted yield curve means is that most investors believe that short-term interest rates are going to fall sharply at some point in the future.

The last time it was inverted was right before the 2020 recession. There is some concern that it could invert this year.

@Tropical_Willie time to maturity is a critical component of interest rate calculations.

Here is an article on Curve Inversion from Bloomberg today.