stripping

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Stripping

The act or practice of removing the coupons from a bond, especially a U.S. Treasury security, and trading the bond separately such that it pays no interest. Stripped 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 invested in IRAs and other pension accounts; however, unlike other Treasury securities, they are subject to federal taxes. Generally speaking, stripped securities are quoted according to their yields, rather than their prices. In 1985, the U.S. Treasury began issuing its own stripped securities, called STRIPS, which replaced other vehicles, such as CATS and TIGRS, that had been issued by the Treasury and stripped by another party.
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stripping

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
This de minimis rule does not specifically apply to stripped bonds and stripped coupons that have OID because of Sec.
The "tax-exempt portion" of the original issue discount is the excess of the obligation's stated redemption price at maturity (or the amount payable on a coupon's due date) over an issue price that would produce a yield to maturity as of the purchase date of the stripped bond or coupon equal to the lower of (1) the coupon rate of interest on the obligation from which the coupons were stripped, or (2) the yield to maturity (on the basis of the purchase price) of the stripped coupon or bond.
[section]1.1275-7; (6) any receivable generated through an extension of credit under a revolving credit agreement (such as a credit card account; (7) a stripped bond or stripped coupon (as defined in IRC Sections 1286(e)(2) and 1286(e)(3)), if the debt instrument from which the stripped bond or stripped coupon is created is described in (1)--(6), above; and (8) a certificate of trust representing a beneficial ownership interest in a debt instrument described in items (1)-(7), above.