coupon stripping

coupon stripping

The purchase of ordinary bonds (usually, U.S. Treasury bonds) that are then repackaged such that the receipts to interest and corpus payments are sold separately. The effect is to transform a security paying regular interest into zero-coupon receipts of varying maturities. Sold under a variety of names such as CATS®, LIONS, and TIGRSM, these investments have proved popular for tax-sheltered accounts such as IRAs. Generic names for them include animals and felines. Also called 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.
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In 2002, the Service released guidance on the application of the coupon stripping rules to certain fees payable out of mortgage payments received by mortgage pool trusts.
Stripped bonds
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Contrast the need to execute and sometimes record mortgage assignments with coupon stripping and repackaging of mortgage cash flows, book-entry issuance and transfer of mortgage-backed securities (MBS), and electronic funds transfers for purchases of mortgages.
Welcome to the 21st century
Given the investment banks' profit from creating zeros via coupon stripping, one might wonder why the Treasury did not, itself, immediately issue zero-coupon debt (other than nonmarketable Series EE Savings Bonds).
Bond market innovations and financial intermediation
Interest coupon stripping is operational either currently or upon economic justification in 23.0 percent of the cases, whereas 70.2 percent report interest coupon stripping as not being operationa, and 6.8 percent identified with the category defined as other.
Internal coupon stripping is derived from a technique used by investment banks in 1982 when creating Treasury investment growth receipts (TIGRS) and certificates of accrual on Treasury securites (CATS).
Coupon stripping cannot be carried out effectively unless multiple life products of varying maturities (i.e., universal life, deferred anniuties, and guaranteed investment contracts) are needed to produce sufficient investible cash flow and, when the yield curve is positive, to pass yield down the curve to the shorter term liability products.
Insurers with an operational internal coupon stripping process tend to have well-segmented portfolios.
If an insurer implements an internal coupon stripping process, other issues must be managed or planned for but do not preclude the usefulness of the tool.
The only exception is internal coupon stripping, which does require a diversified product line.
Asset/liability management for the life insurer: situation analysis and strategy formulation
91-46 holds that where mortgage servicing is retained at an amount that is deemed to be in excess of reasonable compensation for the services to be performed (i.e., excess servicing), the mortgages are "stripped bonds" within the meaning of Code Section 1286(e) (2), the bond coupon stripping rule.
Secondary market

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