Maturity premium
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
Extra yield required for holding a longer-maturity bond.
Maturity premium in plain English
When you lend money for longer, more can go wrong before you get paid back — prices could rise, interest rates could jump, or your money is simply tied up and unavailable. So investors demand a little extra reward for lending long instead of short, and that extra reward is the maturity premium. It's like a friend offering you more interest to borrow your money for two years instead of two weeks, because you're taking on more uncertainty by waiting longer. This is a big reason long-term bonds usually pay higher yields than short-term ones.
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