What is a Medium Term Note (MTN)?

A medium-term note (MTN) is a type of corporate debt security that usually matures in 5 to 10 years. Unlike short-term notes or long-term bonds, MTNs offer an intermediate investment option for investors. Companies can continuously offer MTNs to investors through a dealer, allowing investors to choose from a range of maturities, typically from 9 months up to 30 years, though most MTNs fall in the 1 to 10 year maturity range.

Maturity Ranges of MTNs

By knowing a note is “medium-term”, investors can get a sense of its maturity timeline compared to other fixed-income securities. MTNs generally have higher coupon rates than short-term notes, but lower rates than longer-term bonds. This makes them an attractive option for investors seeking an investment horizon beyond the short-term, without the commitment of a long-term bond.

Benefits of Medium Term Notes

MTNs offer several benefits for both investors and issuers:

For Investors

• Provide an option between short-term and long-term investments
• Offer higher yields than short-term notes
• Require less long-term commitment than bonds

For Issuers

• Allow companies to have a consistent cash flow from debt issuance
• Provide flexibility to tailor debt to financing needs
• Only require one SEC registration, rather than for each maturity

Companies can also choose to offer MTNs with or without call options. Callable MTNs have higher rates but allow the issuer to retire the bond early if rates decline, while non-callable MTNs have lower rates but provide more investment duration certainty. Overall, medium-term notes give both investors and issuers more flexibility and options compared to traditional short-term or long-term fixed-income securities. Their intermediate maturity range makes them a useful tool for managing corporate financing and investor portfolio needs.