Separate Trading of Registered Interest and Principal of Securities

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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.

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

Treasury securities that have had their coupons and principal repayments separated into what effectively become zero-coupon Treasury bonds. The parts, issued in book-entry form, carry the full backing of the U.S. Treasury. Like other zero-coupon bonds, these securities are subject to wide price fluctuations. They also subject the owner to an annual federal income-tax liability even though no direct interest is paid.
Case Study The acronym STRIPS derives from stripping, or peeling, interest payments from Treasury bonds and selling the interest payments and principal amounts as separate zero-coupon securities. Zero-coupon securities were created in the early 1980s when investment firms stripped interest coupons from Treasury bonds and sold interest payments and principal amounts at their current discounted values. These firms acquired large blocks of regular coupon-paying Treasuries that were placed in trust with commercial banks. The banks then issued certificates against each of the interest payments as well as against the principal amount of each bond. Thus, a group of ordinary Treasuries was converted into numerous zero-coupon securities, each with a different maturity. For example, an investment firm might purchase a large number of 15-year Treasury bonds, deposit the bonds with a commercial bank, and the commercial bank would issue a series of zero-coupon securities with maturities ranging from six months (the date of the first interest payment) to 15 years (the date of the last interest payment and the payment of principal). Thus, the 15-year bonds are converted into 30 separate zero-coupon bonds. The new zero-coupon securities became so popular with investors that, in 1985, the U.S. Treasury introduced STRIPS. With these securities, interest and principal payments from U.S. Treasury securities are registered separately through the Federal Reserve. Each interest payment and the principal amount can then be sold to investors as a zero-coupon bond maturing on the date of the scheduled payment.
References in periodicals archive ?
Complete due diligence is performed on every secondary market structured settlement income annuity and every structured settlement/lottery we offer is backed by a major Insurance Company or Government Treasury Strips.
Unlike the market for Treasury Strips, the market for Treasury Inflation Protected Securities is not very liquid.
In early 2008, it diversified its equity holdings, added commodities, and moved 10% of its assets from long-term bonds into Treasury Strips.
Pugh, the president and chief investment officer of Pugh Capital Management in Seattle, correctly predicted in early August last year that rates would ease downward and highly rated municipal bonds and Treasury STRIPS would thrive as a result.
CRG also assisted with the defeasance of the existing loan using short-term Treasury strips.
The Treasury strips involve zero default risk; however, the degree of default risk associated with Republic of Austria securities is slight due to the triple-A rating.
Our investments are guaranteed by the corresponding major insurance companies and US Gov't Treasury Strips.
Treasury STRIPS, or Separate Trading of Registered Interest and Principal Securities, are a great interest rate play.
OKLAHOMA CITY -- CEMP LLC is continuing to bring accredited and institutional investors credit-enhanced mortgage-backed securities (MBS) with A1 Classes that carry a "AAA" Rating from S&P (or DBRS), given their Principal is fully collateralized by underlying A2 Classes of treasury strips.
money market funds, or US Treasury strips that mature during your student's first two years of college.
WASHINGTON -- The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Ramon Luis Dominguez, President of RD Capital Group in Puerto Rico, to pay restitution of $950,000 plus interest to three customers victimized when Dominguez and the firm charged undisclosed, excessive and fraudulent markups on the sale of United States Treasury STRIPS.
A guaranteed investment return, zeros fall into two main categories: Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) and municipals.