Stripped Bond

Stripped bond

Bond that can be subdivided into a series of zero-coupon bonds.

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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.