Term to Maturity

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Definition of 'Term to Maturity'

The term to maturity of a bond is the length of time until the bond matures and the principal is paid back to the investor. It is calculated by subtracting the bond's issue date from its maturity date. For example, if a bond is issued on January 1, 2023 and matures on January 1, 2025, its term to maturity is 2 years.

The term to maturity is an important factor to consider when investing in bonds, as it affects the bond's yield and risk. Longer-term bonds tend to have higher yields than shorter-term bonds, but they also carry more risk. This is because longer-term bonds are more exposed to interest rate risk, which is the risk that the interest rate on the bond will rise before it matures. If interest rates rise, the value of the bond will fall, and the investor will lose money.

The term to maturity is also important for determining the bond's liquidity. Longer-term bonds are less liquid than shorter-term bonds, because there are fewer buyers and sellers in the market for longer-term bonds. This means that it may be more difficult to sell a long-term bond if you need to do so before it matures.

Overall, the term to maturity is an important factor to consider when investing in bonds. It is a measure of the bond's length and risk, and it also affects the bond's liquidity.

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