What is the maturity of a bond? Why does it matter?

Staci West 21/02/2024 in Fixed income

Shalin Shah, co-manager of the Royal London Corporate Bond fund, briefly explains what a bond maturity means for fixed income investors.

Watch the full interview with Shalin here.

So, the maturity of a bond represents when the company you’re lending to has to pay you back the amount it’s borrowed. So, if we buy a 2030 bond, the company will repay us – or is expected to repay us – on that date. It matters because you then know when your cash flows will arrive and also the income stream, when it stops.

It also matters because it is a real obligation. So, if the company’s unable to pay you on that date, it may become what we call a default. And so, it is an area that we will be always looking at in terms of companies that may have to refinance their debt in markets, we would be looking at that date to make sure that they’re in a good position to repay their borrowings.

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