Loading the player...

What does 'Maturity Date' mean

Maturity date is the date on which the principal amount of a note, draft, acceptance bond or another debt instrument becomes due and is repaid to the investor and interest payments stop. It is also the termination or due date on which an installment loan must be paid in full.

BREAKING DOWN 'Maturity Date'

The maturity date defines the lifespan of a security, informing you when you will get your principal back and for how long you will receive interest payments. However, it is important to note that some debt instruments, such as fixed-income securities, are "callable", which means that the issuer of the debt is able to pay back the principal at any time. Thus, investors should inquire, before buying any fixed-income securities, whether the bond is callable or not.

Classifications of Maturity

Maturity date is used to classify bonds and other types of securities into broad categories of short-term, medium-term and long-term. This classification system is used widely in the finance industry. A short-term bond matures in one to three years, a medium-term bond matures in four to 10 years and a long-term bond matures in over 10 years. A common type of long-term bond is a 30-year U.S. Treasury Bond. A 30-year Treasury bond, at its time of issue, offers interest payments for 30 years (every six months in the case of a Treasury Bond) and, in 30 years, the principle it loaned out.

Relationships Between Maturity Date, Coupon Rate and Yield to Maturity

A bond with a longer term to maturity, or remaining time until its maturity date, tends to offer a higher coupon rate than a bond of similar quality but with a shorter term to maturity. This is for a couple of reasons. First, the default risk of a corporation or government increases the further into the future you project. Second, the expected inflation rate is also higher the further you go out into the future, which must be incorporated into the rate of return that an investor receives.

To illustrate, consider the situation of an investor who in 1986 bought a 30-year Treasury bond with a maturity date of May 26, 2016. Using the Consumer Price Index (CPI) as the metric, the hypothetical investor experienced an increase in U.S. prices, or rate of inflation, of over 218% during the time he held the security. This is a glaring example of how inflation becomes greater over time.

Another important behavior to observe is that as a bond grows closer to its maturity date, its yield to maturity and coupon rate begin to converge. This is because a bond's price is less volatile the closer it is to maturity.

RELATED TERMS
  1. Current Maturity

    The interval between the present date and the maturity date of ...
  2. Term To Maturity

    The remaining life of a financial instrument. In bonds, it is ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security ...
  4. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Term Bond

    Bonds from the same issue that share the same maturity dates. ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
Related Articles
  1. Investing

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  2. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  3. Financial Advisor

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  4. Investing

    How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?

    Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity.
  5. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  6. Investing

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  7. Investing

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  8. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  9. Investing

    5 Basic Things To Know About Bonds

    Learn these basic terms to breakdown this seemingly complex investment area.
RELATED FAQS
  1. What is the difference between yield to maturity and the yield to call?

    Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing ... Read Answer >>
  2. What are the maturity terms for Treasury bonds?

    Learn how treasury bonds pay interest, when they reach maturity and the differences between terms for treasury bonds and ... Read Answer >>
  3. What happens to the price of a premium bond as it approaches maturity?

    Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ... Read Answer >>
  4. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  5. What is the difference between yield to maturity and the coupon rate?

    Read about some of the basic differences between a debt security's coupon rate and its yield to maturity, and learn which ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center