A term bond is one of a group of bonds that all share the same maturity date. This approach is usually taken by the issuer to maximize its use of investor cash. Conversely, if the issuer had sold serial bonds, it would instead have to pay back some of the bonds at an earlier date, thereby reducing the period over which it could use the cash.

Advantages of Term Bonds

Investors like term bonds, since they allow investors to lock in an interest rate for a long period of time.

Disadvantages of Term Bonds

The payback of a large group of term bonds at the same time can present a liquidity challenge for the issuer, which may deal with the situation by rolling over the debt into a new bond issuance. This can be a problem when market interest rates have risen, so that the interest cost of the replacement debt is higher than the interest cost of the original term bonds.