What Exactly Is a Medium-Term Note (MTN)?
A medium-term note (MTN) is a security that matures in five to ten years. Most MTNs have maturities between one and ten years. Still, a company can continuously issue corporate MTNs to investors through a dealer, with maturities ranging from nine months to 30 years.
Understanding MTNs (Medium-Term Notes)
When investors compare a medium-term note’s price to other fixed-income assets, they can estimate its maturity. If all else is equal, the coupon rate on an MTN will be higher than that on a short-term note. A corporation utilizes this debt program for corporate MTNs to have consistent cash flows flowing from their debt issuing; it allows a firm to adjust its debt issuing to match its financing needs. Medium-term notes enable a corporation to file with the Securities and Exchange Commission (SEC) once rather than multiple times for varying maturities.
Advantages of Medium-Term Notes
MTNs provide investors with a choice between typical short-term and long-term investments. This can be suitable when the investor’s aims fall outside the time frames afforded by certain municipal bonds or short-term banknotes without committing to the long-term note choices. Businesses can benefit from MTNs if they provide investors with steady cash flow. Furthermore, businesses can sell MTNs with or without call options.
While the rates associated with call options are frequently higher, the corporation can retire or call the bond before maturity. This enables corporations to take advantage of lower rates if they occur before the maturity of a bond series by calling in the bond issue and issuing new bonds at the lower rate. Non-callable options do not have the same level of risk in terms of investment duration; hence, they are offered at lower rates.
Options in Medium-Term Notes are available.
Investors interested in participating in the MTN market frequently have options regarding the specific nature of the investment. This can include a range of maturity dates as well as financial amounts. Because the tenure of an MTN is longer than that of short-term investment choices, the coupon rate on an MTN is generally higher while being lower than the rates given on some longer-term assets.
