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List of Partners vendors. The maturity date is the date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due. On this date, which is generally printed on the certificate of the instrument in question, the principal investment is repaid to the investor, while the interest payments that were regularly paid out during the life of the bond, cease to roll in.
The maturity date also refers to the termination date due date on which an installment loan must be paid back in full. The maturity date defines the lifespan of a security, informing investors when they will receive their principal back. A year mortgage thus has a maturity date three decades from one it was issued and a 2-year certificate of deposit CD has its maturity date twenty-four months from when it was established.
The maturity date also delineates the period of time in which investors will receive interest payments. However, it is important to note that some debt instruments, such as fixed-income securities , may be "callable," in which case the issuer of the debt maintains the right to pay back the principal at any time. Thus, investors should inquire, before buying any fixed-income securities, as to whether the bonds are callable or not. For derivatives contracts such as futures or options, the term maturity date is sometimes used to refer to the contract's expiration date.
Maturity dates are used to sort bonds and other types of securities into one of the following three broad :. This classification system is widely used across the finance industry, and appeals to conservative investors who appreciate the clear time table, as to when their principal will be paid back.
Bonds with longer terms to maturity tend to offer higher coupon rates than similar quality bonds, with shorter terms to maturity. There are several reasons for this phenomenon. First and foremost, the risk of the government or a corporation defaulting on the loan increases, the further into the future you project. Secondly, the inflation rate expectedly grows higher, over time. These factors must be incorporated into the rates of return fixed income investors receive.
To illustrate this, consider a scenario where an investor who in bought a year Treasury bond, with a maturity date of May 26, This is a glaring example of how inflation increases over time. Furthermore, as a bond grows closer to its maturity date, its yield to maturity YTM , and coupon rate begin to converge, because a bond's price grows less volatile, the closer it comes to maturity.
With callable fixed income securities, the debt issuer can elect to pay back the principal early, which can prematurely halt interest payments doled out to investors. Fixed Income Essentials. Corporate Bonds. Treasury Bonds. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any . These choices will be aled globally to our partners and will not affect browsing data.
We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Bonds Fixed Income Essentials. What Is a Maturity Date? Key Takeaways The maturity date refers to the moment in time when the principal of a fixed income instrument must be repaid to an investor. The maturity date likewise refers to the due date on which a borrower must pay back an installment loan in full. The maturity date is used to classify bonds into three main : short-term one to three years , medium-term 10 or more years , and long term typically 30 year Treasury bonds.
Once the maturity date is reached, the interest payments regularly paid to investors cease since the debt agreement no longer exists. Compare s. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Related Terms Term Bond Term bonds mature on a specific date in the future and the bond face value must be repaid to the bondholder on that date. What Is Maturity? Maturity refers to a finite time period at the end of which the financial instrument will cease to exist and the principal is repaid with interest. Capital Note A capital note is short-term unsecured debt issued by a company to pay short-term liabilities.
Capital notes have low priority and carry more risk than other types of secured corporate debt. Bond Ladder A bond ladder is a portfolio of fixed-income securities with different maturity dates. Read how to use bond ladders to create steady cash flow. What Is a Bond Call Protection? Call protection is a provision in a bond that prohibits the issuer from buying it back during a set period early in its life.
Treasury debt obligation that has a maturity of 30 years. Partner Links. Related Articles. Investopedia is part of the Dotdash publishing family.Date or long term
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