Medium Term Note (MTN): Definition, Maturity Ranges, Benefits

What Is a Medium Term Note (MTN)?

A medium-term note (MTN) usually matures in five to 10 years. A corporate MTN can be continuously offered by a company to investors through a dealer with investors able to choose from differing maturities, ranging from nine months to 30 years, though most MTNs range in maturity from one to 10 years.

Understanding Medium Term Notes (MTN)

By knowing that a note is medium term, investors have an idea of its maturity when they compare its price to other fixed-income securities. All else being equal, the coupon rate on an MTN will be higher than those on short-term notes. For corporate MTNs, this debt program allows a company to have constant cash flows coming in from its debt issuance and tailor its debt issuance to meet its financing needs. Medium-term notes allow a company to register with the Securities and Exchange Commission (SEC) only once instead of every time for differing maturities.

Benefits of Medium-Term Notes

MTNs offer investors an option between short-term and long-term investments. This can be ideal for situations where the investor’s goals fall into a timeframe beyond those offered by certain municipal bonds or short-term banknotes without committing to long-term note options. Businesses can benefit from MTNs by providing a consistent cash flow from investors. Additionally, businesses can choose to offer MTNs with or without call options.

While the rates associated with call options are often higher, the business maintains the right to retire or call the bond within a specified period of time before the bond reaches maturity. This allows businesses to take advantage of lower rates, should they occur before a bond series has reached maturity, by calling in the bond issue and then issuing new bonds at the lower rate. Non-callable options do not have the same level of risk regarding the duration of the investment, leading them to be offered at lower rates.

Options Available in Medium Term Notes

Investors in the MTN market often have options regarding the exact nature of the investment, including various maturity dates and dollar amount requirements. Since the term involved in an MTN is longer than that of short-term investment options, the coupon rate will often be higher on an MTN but lower than the rates offered on longer-term securities.