Maturity date refers to the date on which an issuer of a credit obligation, or bond, must pay back the principal amount of the debt to those who purchased it. Bonds are debt obligations issued by corporations, sovereign governments, or municipalities. These securities pay a stated annual interest rate for every $1,000 US Dollars (USD) of face amount. The issuer pays bondholders back the full face amount, at a specified date in the future, when the bonds come due or mature. A maturity date is also referred to as a redemption date. Depending on the financial needs of the issuer, maturities can range from one to 30 years.
Debt instruments are frequently categorized in terms of their maturity dates. Bonds with a maturity date of less than one year are called short term, while those that mature between one to five years are called intermediate term, and those maturing in five years or later are considered long term. Fixed income investments that mature in less than one year are often referred to as notes or bills. For most bonds, the specific maturity date is conspicuously noted on the physical face of the bond certificate.
A bond’s maturity date is an important factor in a calculation used frequently by those purchasing bonds in the secondary market. Yield-to-maturity is a figure commonly used in the investment world, which assists investors in determining comparable rates of return on alternate, fixed-income vehicles in the secondary market. Since the price of bonds fluctuates with interest rates, bonds are frequently purchased in the secondary markets at either a discount, or a premium to their face value — or par $1,000 amount.
Bonds are issued in denominations of $1,000 USD. An investor may 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 matures, the investor will receive the $1,000 USD. A bond’s yield-to-maturity is a measure of the rate of return, or yield, that accounts for the actual amount paid, the face 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 bond that is callable gives the issuer the right to redeem it at some point prior to the stated maturity date.