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. Face Value

    The nominal value or dollar value of a security stated by the ...
  6. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
Related Articles
  1. Bonds & Fixed Income

    Perpetual Bonds: An Overview

  2. Bonds & Fixed Income

    The Wonders Of Convertible Bonds

  3. Bonds & Fixed Income

    All About Zero Coupon Bonds

  4. Bonds & Fixed Income

    Know Your Cost Basis For Bonds

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center