Term To Maturity

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.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  2. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  3. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  4. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  5. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  6. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
Trading Center