What Is a Medium Term Note (MTN)?
Let me tell you directly: a medium-term note, or MTN, is a note that usually matures in five to 10 years. If you're dealing with corporate MTNs, a company can offer them continuously to investors through a dealer, and you as an investor can pick from maturities ranging from nine months to 30 years, though most stick to one to 10 years.
Understanding Medium Term Notes (MTN)
When you know a note is medium-term, you get a clear sense of its maturity when comparing its price to other fixed-income securities. All things equal, the coupon rate on an MTN will be higher than on short-term notes. For companies, this debt program means constant cash flows from issuances, letting them tailor debt to their financing needs. Plus, MTNs allow a company to register with the SEC just once, not every time for different maturities.
Benefits of Medium-Term Notes
MTNs give you, the investor, a choice between short-term and long-term investments. This fits well if your goals are in a timeframe beyond municipal bonds or short-term banknotes, without locking into long-term commitments. For businesses, MTNs provide consistent cash flow from investors, and they can choose to include call options or not.
Rates with call options are usually higher, but the business can retire the bond before maturity if rates drop, issuing new ones at lower rates. Non-callable MTNs have less duration risk, so they're offered at lower rates.
Options Available in Medium Term Notes
If you're looking to get into the MTN market, you often have choices on the investment details, like various maturity dates and dollar amounts. Since MTNs have longer terms than short-term options, their coupon rates are typically higher, but lower than some long-term securities.
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