In bond markets, what does the term 'maturity' refer to?

The term 'maturity' in bond markets specifically refers to the time until the principal amount of the bond must be repaid to the bondholder. This concept is crucial because it determines how long an investor will receive interest payments (coupons) and when they will get their initial investment back. Understanding maturity is essential for managing interest rate risk and making informed investment decisions, as the length of time until maturity can affect a bond’s price sensitivity to changes in interest rates.

For instance, longer maturity bonds generally have greater price volatility compared to shorter maturity bonds when interest rates fluctuate. This is because the cash flows from longer investments are discounted over a more extended period, making them more sensitive to changes in market conditions. In contrast, other choices such as total interest earned, the issuance price, or the creditworthiness of the issuer relate to different aspects of bond investment but do not specifically define what 'maturity' means within the context of bond markets.