What is Balloon Maturity?
Often associated with a term bond, balloon maturity is a situation that occurs when the maturity date of a bond or set of bond issues takes place in a calendar year, with the result being an unusually high amount of bond principal being realized. Here is some information about how balloon maturity works, and why the approach may be a good fit for both the issuer and the investor. Balloon maturity is usually associated with a bond issue that has a single and fixed maturity date. Rather than quoting the value of the bond in terms of price, the worth is quoted in yield expected at the maturity date. In order for the balloon maturity strategy to work, the issuer of the bond agrees to a repayment schedule that is considered equitable to both the investor and the issuer. The repayment on the issue of bonds proceeds along at a rate that is not unlike any type of bond transaction. What is different is that the issuer agrees to make the payments into a sinking fund that helps to ensure the rede
