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Fixed income

Bond maturity

Bond maturity refers to the date when a bond's principal, or face value, is repaid to the investor, and interest payments cease. It marks the end of the bond's term, which can range from short-term (less than one year) to long-term (30 years or more). The maturity date helps investors assess the bond's duration risk, as longer maturities generally involve higher interest rate risk. Usually, the longer the term to maturity, the higher the interest rate on the bond will be to compensate for this increased risk. Also, longer-term bonds are more volatile in price on the secondary bond market due to their sensitivity to interest rate changes.


Bond maturities

Bonds can be characterized as having the following maturities:

  • Short-term bonds: up to three years

  • Intermediate-term bonds: four to ten years

  • Long-term bonds: more than ten years


Other bond maturity considerations

Interest rate risk: Longer maturities mean that there's a greater chance for interest rates to change over the life of the bond, which affects the bond's price inversely.

Price volatility: Longer-term bonds exhibit greater price fluctuations in response to interest rate movements compared to shorter-term bonds.

Yield considerations: Investors demand higher yields for longer-term bonds to compensate for the increased risk associated with time and interest rate uncertainty.


Also read

Coupon rate Sovereign bonds Yield curve



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