What is a 'Medium Term Note - MTN'

A medium term note (MTN) is a note that usually matures in five to 10 years. A corporate MTN can be continuously offered by a company to investors through a dealer with investors being able to choose from differing maturities, ranging from nine months to 30 years, though most MTNs range in maturity from one to 10 years.

BREAKING DOWN 'Medium Term Note - MTN'

By knowing that a note is medium term, investors have an idea of what its maturity will be when they compare its price to that of other fixed-income securities. All else being equal, the coupon rate on an MTN will be higher than those achieved on short-term notes. For corporate MTNs, this type of debt program is used by a company so it can have constant cash flows coming in from its debt issuance; it allows a company to tailor its debt issuance to meet its financing needs. Medium-term notes allow a company to register with the Securities and Exchange Commission (SEC) only once, instead of every time for differing maturities.

Benefits of Medium Term Notes

MTNs offer investors an option between traditionally short-term and long-term investments. This can be ideal for situations where the investor’s goals fall into a time frame beyond those offered by certain municipal bonds or short-term bank notes without having to commit to the long-term note options. Businesses can benefit from MTNs based on their ability to provide a consistent cash flow from investors. Additionally, businesses can choose to offer MTNs with or without call options.

While the rates associated with call options are often higher, the business maintains the right to retire, or call, the bond within a specified period of time before the bond reaches maturity. This allows business to take advantage of lower rates, should they occur before a bond series has reached maturity, by calling in the bond issue and then issuing new bonds at the lower rate. Non-callable options do not have the same level of risk regarding the duration of the investment, which leads them to be offered at lower rates.

Options Available in Medium Term Notes

Investors looking to participate in the MTN market often have options regarding the exact nature of the investment. This can include a variety of maturity dates as well as dollar amount requirements. Since the term involved in an MTN is longer than those associated with short-term investment options, the coupon rate will often be higher on an MTN while being lower than the rates offered on some longer term securities.

RELATED TERMS
  1. Term To Maturity

    The remaining life of a financial instrument. In bonds, it is ...
  2. Current Maturity

    The interval between the present date and the maturity date of ...
  3. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
  4. Bond Ladder

    A portfolio of fixed-income securities in which each security ...
  5. Medium Term

    An asset holding period or investment horizon that is intermediate ...
  6. Average Effective Maturity

    For a single bond, it is a measure of maturity that takes into ...
Related Articles
  1. 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.
  2. 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.
  3. 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 ...
  4. Investing

    Corporate Bonds: Advantages and Disadvantages

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

    Retail Notes: A Simpler Alternative To Bond Funds

    These securities are meant to be held until maturity, removing the burden of complex pricing that sometimes plagues bonds.
  6. Financial Advisor

    The Effect of Fed Fund Rate Hikes on Your Bond Portfolio

    Learn how an increase in the federal funds rate may impact a bond portfolio. Read about how investors can use the duration of their portfolio to reduce risk.
  7. Investing

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  8. 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.
  9. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
RELATED FAQS
  1. Are U.S. banks authorized to issue bank guarantees or medium term notes (MTNs)?

    Bank guarantees and medium term notes (MTNs) are different types of instruments that serve different purposes for corporations. ... Read Answer >>
  2. How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than ... Read Answer >>
Hot Definitions
  1. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  2. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  3. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  4. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  5. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
Trading Center