Definition of Medium-Term Note (MTN)
A Medium-Term Note (MTN) is a type of financial instrument issued with a maturity period that generally spans from three to six years. MTNs can be issued in a variety of currencies, but when issued in a eurocurrency, they are generally known as Euro Medium-Term Notes (EMTNs). Traditionally, MTNs were unsecured, but there has been a significant increase in the issuance of Asset-Backed Medium-Term Notes (ABMTNs), where the notes are backed by assets housed within a Structured Investment Vehicle (SIV).
Examples of Medium-Term Note
Corporate Issuance: A large corporation might issue a 5-year MTN to raise capital for expansion projects. The note promises to pay interest semi-annually.
Government MTN: A government may issue euro MTNs to international investors as part of its debt management strategy, attracting foreign investment.
Asset-Backed MTN: A financial institution could issue ABMTNs, where the notes are secured by mortgage-backed securities held within an SIV.
Frequently Asked Questions (FAQ) About Medium-Term Note
What are the typical maturities for medium-term notes?
MTNs usually have maturities between three to six years, though they can extend up to 10 years based on issuer and market conditions.
How do medium-term notes differ from bonds?
MTNs offer more flexibility in terms of maturity and issuance compared to traditional bonds, and are often issued continuously over a long period.
Can MTNs be traded in secondary markets?
Yes, MTNs can be traded in secondary markets, providing liquidity for investors.
Are all medium-term notes asset-backed?
No, not all MTNs are asset-backed. Many are unsecured, though asset-backed variations (ABMTNs) have become more popular in recent years.
Who are the typical issuers of medium-term notes?
Corporations, financial institutions, and governments are common issuers of MTNs.
Related Terms
- Structured Investment Vehicle (SIV): A pool of assets structured to produce high returns, often used as backing for asset-backed notes.
- Eurocurrency: Currency deposited outside its home market, often used in international financing.
- Asset-Backed Security (ABS): A financial security backed by a pool of assets, such as loans, leases, credit card debt, or receivables.
Online Resources
- Investopedia: Medium-Term Note (MTN)
- SEC: Asset-Backed Securities
- Euro Medium-Term Note Programs Explained
Suggested Books for Further Studies
- “Fixed Income Analysis” by Frank J. Fabozzi
- “The Handbook of Fixed Income Securities” by Frank J. Fabozzi
- “Structured Finance and Collateralized Debt Obligations: New Developments in Cash and Synthetic Securitization” by Janet Tavakoli
Accounting Basics: “Medium-Term Note (MTN)” Fundamentals Quiz
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