Maturity

The word describes a fixed end point written into an instrument when it is created. A bond matures when its final coupon is paid and its principal is repaid at par. A deposit matures when the term ends. A forward contract matures on the date the two parties agreed to exchange. In each case, maturity is a date rather than an event that has to be decided, and the schedule of payments running up to it is known from the outset.

Exchange traded derivatives use the related word expiry, and the practical difference is what happens on the day. A maturing bond is redeemed for cash. A futures contract reaching its expiry date is either settled in cash against a final reference price or, in some contracts, settled by delivery of the underlying. Because a dated contract stops existing, a continuously quoted instrument priced from it has to be moved to the next contract as the near one approaches expiry, which is a rollover.

Two confusions are common. Maturity is not duration: maturity is a date on a calendar, duration is a weighted measure of when a bond's cash flows arrive and of how sensitive its price is to a change in interest rates, and two bonds maturing on the same day can have very different durations. And an instrument with no maturity is not thereby free to hold: a contract for difference on a cash instrument has no end date, and a position in it carries a financing adjustment for each night it stays open instead.