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Medium term bonds, also called intermediate-term or medium term notes, are relatively new instruments, designed to be a cross between regular corporate bonds and commercial paper. It is generally held that these bonds have maturities of between two and ten years, but the actual life of medium term bonds is not as important these days as the structure they carry, which is called shelf-registration.
According to Securities and Exchange Commission regulations, any corporate debt with a maturity greater than 270 days must be registered with the SEC in the same manner as corporate bonds. However, these registrations are costly, time-consuming, and until recently would yield inflexible bonds that could be renewed only after a minimum of ten years. Corporations wanted a way to issue bonds of a shorter term, with more flexible options. So in 1982 the SEC launched the medium term bond market.
Medium term notes must be registered, like bonds, but they may be issued as often as every two years. During their life, the issuer may adjust the term of maturity or the nominal yield of medium term bonds according to the issuer's needs or the demands of the market. This process is called shelf-registration, and is what primarily distinguishes medium term bonds from regular corporate bonds. However, like regular bonds, medium term notes are registered with the SEC in the usual fashion, and are also usually issued as coupon-bearing instruments.
The actual term-until-maturity and yield-structure of bonds are not what defines them as medium term. Medium term bonds are defined by their intermediate status between the flexibility of commercial paper and the security of regular bonds. Shelf-registered securities have been issued with maturities of twenty or thirty years and yet still classified as medium term bonds.
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Medium Term Bonds