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.