Long-Dated Asset

A class of income-generating assets where the revenue stream is generated over a long period of time. Residential mortgages and 20-year bonds are examples of long-dated assets.

Long-dated assets can often lead to problems for holders, especially if holder's goal is to generate enough income to pay off interest-rate-sensitive liabilities. If interest rates increase, the holder's loan payments also increase; however, the income generated from the long-dated asset remains the same.

For example, banks generally hold-long dated assets such as residential mortgages. Banks also have interest-sensitive liabilities such as demand deposits from savings accounts. Since the income generated by mortgages tends to be steady over the life of the loan, the amount of money the bank receives from mortgages is limited. However, cash outflows from demand deposits are not generally limited and can potentially skyrocket if interest rates rise high enough. The bank could end up in financial distress if it does not have enough revenue to cover the interest payments to depositors.