short vs. long-term bonds

You seem to be mixing up several issues here - individual bond vs. bond fund, long term verses short term (yield curve), government vs. corporate, I'll limit my discussion to the yield curve. Given that you are comparing two government bond funds below (TLT and DSGIX), neither the issue of individual bond vs. fund nor the issue of corporate vs. government seems relevant

Generally speaking, the yield curve (yield vs. time to maturity) flattens out around 10 years. While interest rates still rise as you buy longer bonds, the rise is not worth the risk in price fluctuation.

So, when someone buys bonds with 20 year maturities (or funds that invest in same), one typically is making a bet on interest rates - expecting interest rates to drop (and thus the price of the bonds to rise, since the price moves in the opposite direction to rates). If one is not trying to make interest rate movement bets, one invests in 10 year notes.

Why 10 vs. 2 year? With a normal yield curve (rising as maturity increases), one buys the longer term bonds for the higher interest rate. Why would longer term bonds offer higher rates? Because people have to be compensated for taking on interest rate risk - the risk that interest rates would rise and they'd be stuck with a lower-paying bond.

While interest rates tend to move in the same direction as inflation, they are not the same. If they were, then the "real rate" of bonds (i.e. the stated or nominal rate, less the inflation rate) would remain constant. Yet real rates vary over time.

Occassionally, long term rates are even lower than short term rates. A common reason for this is that people think the economy is slowing, so that they expect interest rates in the future to drop. So they want to buy longer term bonds to lock in their yield for the long term. That pushes up demand, increasing the price of the longer term bonds, thus pushing down the yields on those bonds.

Doesn't matter. US government debt is still regarded as the safest in the US if not the world. Meaning that it will not default. (It could create inflation, though.)

One usually sees a rising yield curve, rising from something around the fed funds rate for 0 year maturity (money market funds). Rising means that short term government funds will usually have somewhat higher yields, 10 year gvmt funds higher, and 20 year gvmt funds a smidgen higher still.

But remember that this is yield, not total return. As interest rates rise, the price of bonds drop - the longer the time to maturity, the larger the drop, all else being equal. And as already explained, sometimes long term bonds yield less than short term bonds.

Mark Freeland snipped-for-privacy@sbcglobal.net

if I read the link you provided correctly, the inverted curce is a strong predictor of a shrinking economy or recession

Historically, the correlation between an inverted yield curve and a subsequent recession has been strong. I do not like calling such a phenomenon a "predictor" or even just "strong predictor." Because for one, this promotes numerological (that is, religious, lacking in logic, gambling-based) beliefs about stocks, bonds, markets, etc.). For another, it promotes thinking for the short term, with the shor-term's addictiveness. Thinking for the short term time and again has been shown to be hazards to people's portfolio and financial goals.

What I do like is encouraging investing based on long term trends in economies (the U.S. and world's, etc.); understanding the basis and caveats for these long-term trends, etc.