Treasury STRIPS

Treasury 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.