Medium Term Notes Should Be Part Of Your Investments Strategy

By Derek Powell

Organizations that want a constant cash flow capital, for operations or debt financing, often turn to medium-term notes. These notes were introduced in the 70s for automobile finance companies that have since been regulated by the SEC, under rule 415.

The benefit of investing in medium term notes is having the knowledge beforehand of the rate schedule and maturity date so it can be compared with rates of other fixed income securities. This allows investors to choose the investment vehicle that works best for them.

Medium term notes are a way to invest your money for a specified time, usually between one and 10 years. Typically, the interest rate on these investment vehicles is higher than shorter term notes. The length of time is appealing to those looking to invest their money and obtain high yields without a long-term commitment.

Medium term notes are not traded on any stock or commodity exchange. Rather, they are sold through dealers or brokers who set their rates based on current market conditions. Investors contact the dealer to conduct the transaction. Its important to know that the dealer can call in the notes before they mature.

Medium-term notes are very flexible, with floating, fixed, inverse floating and step up or step down interest rates. There are also structured notes with rates based on the equity index, prime rate or alternative funds and markets. Interest payments are typically flexible, with your options ranging from semi-annually down to monthly

Medium term notes offer a compromise between short-term investing and long-term stock or bond investments. However, they are unsecured. They are generally backed by the strength of the issuer, which could be any type of entity, including a city, country, or financial institution. As an example, a city might sell these types of notes to finance a construction project. If the entity is unable to pay or goes bankrupt, your investment could be worthless. But overall, MTNs are not considered high risk.

Medium-term notes are similar to bonds, but sold in smaller quantities. There are also exchange traded notes, which have similar characteristics to stocks and may even be traded on the stock market. In this case investors can take advantage of market conditions. For diversity, investors can have several type of notes in there portfolio, as well as a mixture of other investment vehicles.

When considering investing in medium term notes, be sure to read the general prospectus to fully understand yield rates and maturity structure. There is some flexibility to request a different interest rate or maturity structure, but these types of requests generally result in a lower yield so the issuer can cover the costs of the additional paperwork. - 23687

About the Author:

Author Derek Powell has a lot of information about medium term notes. Check out http://www.thecommodityblog.com for up-to-date news.