What does maturity mean in relation to bonds?

There are various terms that you need to understand when it comes to investing in bonds, because you will come across them often.

One of the most common words is MATURITY, and this is particularly important to understand.

A bond is one of those products that virtually always has a specific end date, unlike something like a share that you may keep until you sell it and is therefore open ended. Because a bond has a specific date at which it ends in most cases, a word is needed to describe that fact, and this is the maturity. So a three year bond matures in three years.

There is also a link between maturity date and the level of return to the investor from the bond. Generally, the further away in the future the maturity date, the greater the return will be, simply because the longer you hold something for, the greater the level of risk as a result. Finally it is worth noting that bonds themselves are tradeable products, so the movement on the prices with the longer term bonds will be more volatile than on shorter ones as they are more sensitive to the various factors that impact upon bond prices having a maturity date that much further in the future.

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What does maturity mean in relation to bonds?

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