Term to Maturity in Bonds

Overview

Term to maturity is the remaining length of time until a bond’s principal (par or face value) is repaid and interest payments stop. It helps determine the bond’s interest rate, price behavior in the secondary market, and investor risk.

Key points

• Term to maturity is the period during which the bondholder receives interest payments.
• At maturity the issuer repays the bond’s par value.
• Term length influences the interest rate offered and the bond’s price sensitivity to interest-rate changes.
• Terms can change for bonds with embedded options (call, put, conversion).

Common term categories

• Short-term: 1–3 years
• Intermediate-term: 4–10 years
• Long-term: 10–30 years

How term affects interest rates and price

• Longer-term bonds typically offer higher interest rates to compensate investors for greater uncertainty over time.
• Price volatility (sensitivity to changes in market interest rates) generally increases with longer maturity: the farther a bond is from maturity, the more its price will fluctuate for a given change in rates.
• The gap between a bond’s market price and its par value tends to be larger for bonds with longer remaining terms.

Interest-rate risk

Interest-rate risk is the risk that rising market interest rates will reduce the market value of an existing bond. Investors in long-term bonds face greater interest-rate risk because they are locked into the bond’s coupon for a longer period and may miss out on higher rates or need to sell at a loss to reinvest.

When term to maturity can change

Some bonds include provisions that alter when the bond can end:

• Call provision — issuer can repay the bond before maturity (often used when rates fall to refinance at lower cost).
• Put provision — bondholder can require the issuer to repurchase the bond at par before maturity (useful if better investments arise).
• Conversion provision — bondholder can convert the bond into issuer equity (changes the effective maturity and payout profile).

Secondary-market valuation

In the secondary market, a bond’s value reflects:
* Its remaining yield to maturity (based on remaining coupon payments and time to redemption)
* The bond’s par value and any embedded options or credit-quality considerations

Example

A company issuing bonds may offer multiple maturities—short-, intermediate-, and long-term—to appeal to different investors. For instance, a 30-year issue typically pays a higher yield than a comparable shorter-term issue to compensate for the longer exposure to interest-rate and credit risk.

Conclusion

Term to maturity is a fundamental bond characteristic that affects yield, price volatility, and investment suitability. When choosing bonds, consider how the term interacts with interest-rate expectations, liquidity needs, and any embedded options in the bond’s terms.