Strip Bond

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Strip Bond

A bond, especially a U.S. Treasury security, that is traded separately from its coupons such that it pays no interest. Strip bonds are sold at a significant discount from par and mature at par. They fluctuate in price, sometimes dramatically, because changes in interest rates make them more or less desirable. They can be placed in IRAs and other pension accounts; however, unlike other Treasury securities, they are subject to federal taxes. Generally speaking, strip securities are quoted according to their yields rather than their prices. In 1985, the U.S. Treasury began issuing its own strip bonds, called STRIPS, which replaced other vehicles, such as CATS and TIGRS, that had been issued by the Treasury and stripped by another party.
References in periodicals archive ?
91-46 indicated that amounts received under a mortgage-servicing contract were interest payments for stripped bonds if (1) the amounts exceeded reasonable compensation for services and (2) the mortgages were sold at the time the mortgage-servicing contract was entered into.
Some types of discounted debt instruments include corporate bonds, municipal bonds, certificates of deposit, stripped bonds, and collateralized debt obligations.
If it fails the coupon requirement, it must meet certain "specified portion" requirements that generally relate to stripped bonds.
This de minimis rule does not specifically apply to stripped bonds and stripped coupons that have OID because of Sec.
1286 treats the holder of a stripped bond (or coupon) as if the holder purchased a newly issued debt instrument with OID.