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Glossary

Maturity

Category — Issue Parameters
The maturity date is directly related to the concept of redeeming a security. The maturity of securities is the moment of withdrawal from circulation, with all obligations being paid in full. The redemption of a security is a purchase of a security by the issuer at the moment and the price that is pre-determined in the redemption terms.

Maturity dates can be classified based on the type of bonds:
Commercial papers. Commercial papers can be considered ultra-short-term bonds with maturity of under a year, in the US - under 9 months. Although commercial papers can be legally issued for up to 270 days, most issues have maturities of under 30 days. There are also overnight securities.

Short-term securities. In the United States, short-term bonds are those with maturities ranging from 1 to 5 years.

Medium-term bonds. These securities have a maturity of 5 to 10 years.

Long-term bonds. These have a maturity of 10 to 30 years, with the most common ranging from 15 to 20 years. However, bonds can be redeemed earlier. Recently, there has been an increased interest from US issuers for ultra-long-term bonds with maturities up to 100 years.

Callable bonds (bonds with a call option). Here, the issuer has the right to redeem the bond from the investor after a certain period. Accordingly, these bonds can be repaid earlier.

Bonds with the right to demand early repayment (bonds with a put option). They are similar to callable bonds - only here, the investor has the right to request redemption at a certain time prior to the bonds’ maturity.

Extendible bonds. These bonds give the option to extend their maturity. In this case, the right to extend the term may be exercised both by the investor and the issuer. If the investor extends the bond's maturity term, this type of bond is very similar to put option bonds. Suppose the issuer has the ability to extend the bond maturity. In that case, such bonds are similar to callable bonds since the issuer can decide to redeem the bond or extend its validity.

Bonds with two maturity dates. As the name suggests, these bonds have two maturity dates. The issuer must redeem the bonds within the specified period. Essentially, they are a type of callable bond.

Perpetual bonds. These bonds don’t involve the redemption of par value. Instead, they only give the right to coupon income. At the same time, these bonds are associated with a specific date, and the issuer can redeem them at their par value after said date. However, since most of these bonds have a low interest rate, redemption is inexpedient, so they continue to circulate.
Terms from the same category