In reality, securities can be distinguished by (among other things) their term to maturity. Suppose, for example, that you wish to borrow money to purchase a home and that you plan to pay off the mortgage in ten years. There are many ways in which you might go about financing such a purchase.
One strategy would be to take out a 10-year (long-term) mortgage. Such a debt instrument has a term to maturity that is equal to ten years. Alternatively, one might choose to take out a one-year (short-term) mortgage and refinance the mortgage every year for ten years. Each one-year mortgage has a term to maturity equal to one year. In practice, the interest rate you pay on a one-year mortgage will typically differ from the interest rate you would pay on a ten-year mortgage. In other words, ‘short-term’ interest rates typically differ from ‘long-term’ interest rates.
