What characterizes a term bond?

A term bond is characterized by its structure of maturing all at once, as opposed to gradually over time. Specifically, these bonds are issued with a set maturity date, at which point the full principal amount is repaid to bondholders. This structure provides clarity and predictability for investors, as they know exactly when they will receive their investment back.

In the context of municipal finance, term bonds are often utilized for projects that have specific funding requirements aligned with the timing of their completion. Investors are generally interested in term bonds because they combine the safety of a fixed investment with definitive maturity timelines. This contrast with other types of bonds, such as serial bonds, where portions of the principal are paid back at various intervals leading up to the final maturity date.

Understanding the specific nature of a term bond helps investors assess their portfolios, as the lump sum payout at maturity may factor into their future cash flow needs and investment strategies.