Term To Maturity

AAA

DEFINITION of 'Term To Maturity'

The remaining life of a debt instrument. In bonds, term to maturity is the time between when the bond is issued and when it matures (its maturity date), at which time the issuer must redeem the bond by paying the principal (or face value). Between the issue date and maturity date, the bond issuer will make coupon payments to the bond holder.

INVESTOPEDIA EXPLAINS 'Term To Maturity'

Bonds can be grouped into three broad categories depending on their term to maturity: short term (1 to 5 years), intermediate term (5 to 12 years) and long term (12 to 30 years). The longer the term to maturity, the higher the interest rate will tend to be, and the less volatile a bond’s market price will be. Also, the further a bond is from its maturity date, the larger the difference between its purchase price (which fluctuates as market interest rates change) and its redemption value (also called principal, par or face value).

If an investor expects interest rates to increase, she will probably purchase a bond with a shorter term to maturity. She will do this to avoid being locked into a bond that ends up paying a below-market interest rate, or having to sell that bond at a loss to get capital to reinvest in a new, higher-interest bond. The bond’s coupon and term to maturity are used in determining the bond’s market price and its yield to maturity.

For many bonds, the term to maturity is fixed, but a bond’s term to maturity can be changed if the bond has a call provision, a put provision or a conversion provision.

RELATED TERMS
  1. Super Sinker

    A bond with long-term coupons but a potentially short maturity. ...
  2. Par Value

    The face value of a bond. Par value for a share refers to the ...
  3. Barbell

    An investment strategy primarily applicable to fixed-income investing, ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity ...
  5. Average Effective Maturity

    For a single bond, it is a measure of maturity that takes into ...
  6. Face Value

    The nominal value or dollar value of a security stated by the ...
Related Articles
  1. Perpetual Bonds: An Overview
    Bonds & Fixed Income

    Perpetual Bonds: An Overview

  2. The Wonders Of Convertible Bonds
    Bonds & Fixed Income

    The Wonders Of Convertible Bonds

  3. All About Zero Coupon Bonds
    Bonds & Fixed Income

    All About Zero Coupon Bonds

  4. Know Your Cost Basis For Bonds
    Bonds & Fixed Income

    Know Your Cost Basis For Bonds

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center