Held-to-Maturity Securities
What it is:
How it works/Example:
When investors purchase debt securities such as bonds, they have two choices: to hold the security until maturity or to sell it at a premium following a relative decline in interest rates. A debt security is described as held-to-maturity if the holder chooses to hold it for the entirety of its term. For instance, if the holder of a 10-Year Treasury bond chooses to hold it until the maturity date in the tenth year, the Treasury bond qualifies as held-to-maturity.
Why it matters:
As fixed-income items, held-to-maturity securities are not susceptible to market price fluctuations as returns are locked-in at the time of purchase. In other words, though the market value of the security held may fluctuate, the returns will not since the holder intends to hold the bond until maturity, benefiting from the interest returns.