Loading the player...

What is 'Maturity Date'

The 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

The 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 principal 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 current maturity is the interval between the present date ...
  2. Term To Maturity

    In bonds, term to maturity is the time between when a bond is ...
  3. Bond Ladder

    A bond ladder is a portfolio of fixed-income securities in which ...
  4. Balloon Interest

    Balloon interest is an increased coupon rate on long-term maturity ...
  5. Straight Bond

    A straight bond is a bond that pays interest at regular intervals, ...
  6. Bond

    A bond is a fixed income investment in which an investor loans ...
Related Articles
  1. 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.
  2. Investing

    Comparing Yield To Maturity And The Coupon Rate

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

    Corporate Bonds: Advantages and Disadvantages

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

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
  5. Financial Advisor

    7 Questions to Consider Before Investing in Bonds

    There is a significant number of questions every investor, private or institutional, should consider before investing in bonds.
  6. Investing

    6 Ways That Investors Use Bonds

    Learn how the stodgy stereotype of bonds can overshadow the basic and advanced uses of what these investments can do for your portfolio.
  7. Investing

    IEI: iShares 3-7 Year Treasury Bond ETF

    Take a closer look at the iShares 3-7 Year Treasury Bond ETF, which is a BlackRock issue focused on intermediate maturity government bonds.
RELATED FAQS
  1. What is the difference between yield to maturity and the coupon rate?

    A bond's coupon rate is the actual amount of interest income earned on the bond each year based on its face value. Read Answer >>
Trading Center