Maturity

What happens at maturity

When a bond reaches maturity:

• Issuer pays back the face value (typically $1,000 per bond) to the bondholder.
• Final coupon payment is typically made alongside.
• The bond ceases to exist — no further obligations.

For a 10-year, 5% coupon bond with $10,000 face value: holder receives $250 every six months for 10 years (semiannual coupons), plus the $10,000 principal at year 10. Total received: $10,000 principal + $5,000 coupons = $15,000.

Maturity ranges

Different debt instruments have very different typical maturities:

• Money market — overnight to 1 year.
• Short-term Treasury bills — 4 weeks to 1 year.
• Treasury notes — 2 to 10 years.
• Treasury bonds — 20 to 30 years.
• Corporate bonds — typically 5 to 30 years.
• Municipal bonds — broad range, often 5 to 30+ years.
• Commercial paper — under 270 days typically.
• Mortgages — 15 to 30 years usually.
• CDs — 3 months to 5 years.

Each maturity range has its own market dynamics and uses.

Why maturity matters

Several effects:

• Sensitivity to interest rates. Long-maturity bonds are more sensitive to rate changes (duration effect).
• Yield differences. Longer maturities typically pay higher yields (term premium), though inverted curves reverse this.
• Cash flow timing. Knowing when principal returns affects liquidity and reinvestment planning.
• Default risk accumulation. Longer maturities give more time for default conditions to develop.

Yield to maturity (YTM)

The annualized return if a bond is held to maturity:

YTM accounts for: current price, face value, coupon payments, time to maturity.

Calculated through iteration; financial calculators and spreadsheets handle it.

YTM differs from current yield (just coupon ÷ price) because it includes the capital gain or loss from the difference between purchase price and face value at maturity.

Maturity dates and bond ladders

A "bond ladder" is a portfolio of bonds with staggered maturities:

• A 5-year ladder might hold bonds maturing in 1, 2, 3, 4, and 5 years.
• As each rung matures, the proceeds get reinvested into a new 5-year bond.
• Provides regular cash flow and reduces interest-rate timing risk.

Ladders smooth out yields and provide ongoing access to maturing principal. Common in retirement income planning and corporate cash management.

Calling and pre-payment

Some bonds can be repaid before maturity:

• Callable bonds — issuer has option to repay early at predetermined prices. Issuers call when rates fall (refinancing). Bondholders effectively short an option to the issuer.
• Putable bonds — bondholder has option to demand early repayment.
• Mortgages — typically prepayable; borrowers refinance when rates fall.
• Asset-backed securities — prepayments from underlying loans affect timing.

Pre-payment risk affects the actual maturity vs. the stated maturity. A 30-year mortgage rarely lasts 30 years; the average mortgage life is around 7 years due to refinancing and home sales.

Maturity in personal finance

For investors holding bonds:

• Match maturity to need. Money you need in 5 years should be in 5-year bonds (or shorter); not in 30-year bonds where rate risk could affect access.
• Bond fund vs. individual bonds. Bond funds don't mature; individual bonds do. For matching specific liabilities, individual bonds are more precise.
• Reinvestment risk. Maturing bonds need to be reinvested at then-current rates, which may be lower than the original.

For mortgages:

• Pay-down trajectory is determined by amortization schedule. Total interest paid over loan life depends on rate and term.
• Pre-payment can shorten effective maturity and save substantial interest.

In other contexts

The "maturity" concept appears beyond bonds:

• Options expiration date — analogous to maturity.
• Futures settlement date — analogous.
• Annuities — payout period to maturity (often life of annuitant).
• CD term — period until withdrawal without penalty.
• Lease end — analogous in operational sense.

The general principle: a defined endpoint at which contractual obligations conclude or convert.

What individuals should know

For investors using fixed-income:

• Understand the maturity profile of any bond holdings.
• Match duration to time horizon. Long-duration bonds in short-horizon money creates rate risk.
• For bond funds, look at average maturity and modified duration as risk indicators.
• Reinvestment planning matters — what happens when bonds mature affects total returns.

Maturity is one of the simplest yet most important concepts in fixed-income investing. Understanding it is foundational to thinking about bond portfolios sensibly.