What is 'Term To Maturity'

Term to maturity refers to the remaining life of a debt instrument. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as 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 bondholder.

BREAKING DOWN 'Term To Maturity'

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

If an investor expects interest rates to increase, she will most likely 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 in order 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. However, a bond’s term to maturity can be changed if the bond has a call provision, a put provision or a conversion provision.

An Example of Term to Maturity

Uber Technologies, during a non-deal roadshow in June of 2016, broke the news that it would seek a leveraged loan to help fund expansion. Then, on Friday, June 26th, Uber confirmed the news by stating that it would issue a $1 billion leveraged loan, to be underwritten and sold by Morgan Stanley on July 7th. The term to maturity of the loan is seven years. This means that Uber is required to repay the debt within a seven-year period.

The provisions of the loan stipulate that there will be a 1% LIBOR floor and a 98 – 99 offer price. At the current term to maturity of seven years and with a size of $1 billion, it's expected that the loan could yield investors between 5.28 - 5.47% to maturity.

RELATED TERMS
  1. Current Maturity

    The current maturity is the interval between the present date ...
  2. Maturity Date

    The maturity date is the date when the principal amount of a ...
  3. Term Bond

    Term bonds mature on a specific date in the future and the bond ...
  4. Balloon Interest

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

    A combination of a serial bond issue and a term bond issue. Essentially, ...
  6. Maturity

    Maturity refers to a finite time period at the end of which the ...
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

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  3. Investing

    Comparing Yield To Maturity And The Coupon Rate

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

    4 basic things to know about bonds

    Learn the basic lingo of bonds to unveil familiar market dynamics and open to the door to becoming a competent bond investor.
RELATED FAQS
  1. What is the difference between yield to maturity and the yield to call?

    Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing ... Read Answer >>
  2. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  3. When is a bond's coupon rate and yield to maturity the same?

    Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the components of bonds and how they ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center