Separate Trading of Registered Interest and Principal Securities

Separate Trading of Registered Interest and Principal Securities (STRIPS)

Long-term notes and bonds divided into principal and interest-paying components, which may be transferred and sold in amounts as small as $1000. STRIPS are sold at auction at a minimum par amount, varying for each issue. The amount is an arithmetic function of the issue's interest rate.

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Separate Trading of Registered Interest and Principal of Securities

Also called STRIPS, a Treasury security whose coupons have been separated from the principal. STRIPS therefore pay no interest. They are sold at a significant discount from par and mature at par. STRIPS fluctuate in price, sometimes dramatically, because changes in interest rates made them more or less desirable. STRIPS could be invested IRAs and other pension accounts; however, unlike other Treasury securities, they are subject to federal taxes. STRIPS are quoted according to their yields rather than their prices. They began to be issued in 1985, rendering obsolete similar securities, such as CATS, which behaved similarly. See also: zero-coupon bond.