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. Average Effective Maturity

    For a single bond, the average effective maturity is a measure ...
  2. Straight Bond

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

    A bond is a fixed income investment in which an investor loans ...
  4. Discount Bond

    A discount bond is a bond that is issued for less than its par ...
  5. Yield To Average Life

    Yield to average life is the bond yield when the average maturity ...
  6. Serial Bond

    A serial bond is a bond issue in which a portion of the outstanding ...
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

    How Interest Rates Impact Bond Values

    The relationship between interest rates and bond prices can seem complicated. Here's how it works.
  5. 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.
  6. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  7. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  8. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  9. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation.
  10. Investing

    How Rising Interest Rates and Inflation Affect Bonds

    Understand bonds better with these four basic factors.
RELATED FAQS
  1. 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 >>
  2. What determines bond prices on the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market and why bond prices and yields ... Read Answer >>
Trading Center