The maturity date is when the issuer of a bond must pay the principal amount to the buyer. Bonds can be short-term, intermediate-term, or long-term, and the maturity date is important in calculating yield to maturity. Callable bonds can be redeemed before the stated maturity date.
The maturity date refers to the date on which an issuer of a credit obligation, or bond, must pay the principal amount of the debt to those who bought it. Bonds are debt obligations issued by corporations, sovereign governments, or municipalities. These securities pay a set annual interest rate per $1,000 United States Dollars (USD) of face amount. The issuer pays bondholders the full face amount, at a specified date in the future, when the bonds mature or mature. An expiration date is also known as a redemption date. Depending on the issuer’s financial needs, maturities can range from one to 30 years.
Debt instruments are frequently classified in terms of their maturity dates. Bonds with a maturity date of less than one year are called short-term, while those with a maturity between one and five years are called intermediate-term, and those with a maturity of five years or more are considered long-term. Fixed income investments that mature in less than a year are often called notes or bills. For most bonds, the specific maturity date is prominently displayed on the physical face of the bond certificate.
The maturity date of a bond is an important factor in a calculation often used by those who buy bonds in the secondary market. Yield to maturity is a commonly used figure in the investment world, helping investors determine comparable rates of return on alternative fixed-income vehicles in the secondary market. Since the price of bonds fluctuates with interest rates, bonds are frequently purchased in secondary markets at a discount or premium to their face value, or an amount of $1,000.
The bonds are issued in denominations of $1,000 USD. An investor can purchase, in the secondary market, a long-term corporate bond with a face amount of $1,000 USD at a discounted price of $870 USD. When this expires, the investor will receive the $1,000 USD. The yield to maturity of a bond is a measure of the rate of return, or yield, which represents the actual amount paid, the nominal amount payable at maturity, and the amount of interest received between the purchase and maturity dates.
There is an exception to the general rule that maturity always refers to a specific principal repayment date. For example, some corporations issue bonds that are callable. A callable bond gives the issuer the right to redeem it at some point before the stated maturity date.
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