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Bond Features

Maturity

A bond's maturity refers to the specific future date on which the investor's principal will be repaid. Bond maturities generally range from one day up to 30 years. In some cases, bonds have been issued for terms of up to 100 years. Maturity ranges are often categorized as follows: 

  • Short-term notes: maturities of up to five years
  • Intermediate notes/bonds: maturities of five to 12 years
  • Long-term bonds: maturities of 12 or more years

Duration

Duration is the weighted average maturity of a bond's cash flows or of any series of linked cash flows. Then the duration of a zero coupon bond with a maturity period of n years is n years. In case there will be coupon payments, the duration will be less than n years. This measure is closely related to the derivative of the bond's price function with respect to the interest rate, and some authors consider the duration to be this derivative, with the weighted average maturity simply being an easy method of calculating the duration for a non-callable bond. It is sometimes explained in inaccurate terms as being a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows.

Credit Rating

Bond choices range from the highest credit quality Government bonds, which are backed by the full faith and credit of the government, to bonds that are below investment-grade and considered speculative. Since a bond may not be redeemed, or reach maturity, for years-even decades-credit quality / security is another important consideration when you're evaluating a fixed-income investment. When a bond is issued, the issuer is responsible for providing details as to its financial soundness and creditworthiness.

 
The major rating agencies include Moody's Investors Service, Standard & Poor's Corporation and Fitch Ratings. Each of the agencies assigns a bonds ratings based on in-depth analysis of the issuer's financial condition and management, economic and debt characteristics, and the specific revenue sources securing the bond. The highest ratings are AAA (S&P and Fitch Ratings) and Aaa (Moody's). Bonds rated in the BBB category or higher are considered investment-grade; securities with ratings in the BB category and below are considered "high yield," or below investment-grade. The rating agencies make their ratings available to the public through their ratings information desks. Many also provide online ratings information that can be accessed through the Internet.