A term bond is one of a group of bonds that all share the same maturity date. This approach is usually taken by the issuer to maximize its use of investor cash. Conversely, if the issuer had sold serial bonds, it would instead have to pay back some of the bonds at an earlier date, thereby reducing the period over which it could use the cash.

Advantages of Term Bonds

Investors like term bonds, since they allow investors to lock in an interest rate for an extended period of time.

Disadvantages of Term Bonds

There are several disadvantages associated with term bonds from the perspective of the issuer, which are as follows:

Liquidity problems. The payback of a large group of term bonds at the same time can present a liquidity challenge for the issuer, which may deal with the situation by rolling over the debt into a new bond issuance.
Rollover rate. If the issuer plans to fund the payback of term bonds with a new issuance, it must accept whatever market rate is available as of the maturity date of the bonds being retired, which could be unfavorable, and may be higher than the coupon rate on the bonds being retired.