The Investment Tool Known As T-Strips
A STRIP is the acronym or it stands for Separate Trading of Registered Interest and Principal Securities. Zero-coupon securities which have maturities longer than a period of one year are not available for issue by the US Treasury, so it has created a program called the STRIPS program, where the principal payments and interest payments or coupons of standard Treasury securities can be broken or disintegrated and traded separately as zero-coupon securities.
History of T-Strips
STRIPS was launched in 1985. The name STRIPS was derived before the computer age, when the paper bonds were physically traded and the traders would tear off the interest coupons literally from the paper securities and resale the broken parts separately.
Under this program, the financial entity can provide the Treasury with standard treasury note or treasury bond that can be stripped. Not naked! :-) ..but stripped into individual instruments of cash flow. At this point the securities are returned to the financial entity.
For example, a 10-year note which is issued will be stripped into twenty interest payments, 2 annually or semi-annually for 10 years and one principal payment which will be due at its maturity date. All the twenty interest payments plus the single principal payment are converted to STRIPS, each of them will then become a separate security. The new separate securities are then identified as coupon strips for the interest payments and principal strips for the principal payment. Together they are referred to as Treasury STRIPS.
These Treasury STRIPS are separate zero-coupon securities. Nothing is different about them at all from the zero-coupon securities. As a matter of fact, to an investor, there is no distinction between a coupon strip and principal strip, although technically the Treasury STRIPS are not identically the same. In the example given, all twenty one coupons have a unique identifying number called the CUSIP number.
The STRIPS program requires that the "stripped" treasury securities are maintained in a book entry form with the fed wire. This enables the "strips" to be easily tracked, therefore making individual trading of the security possible.
T Strips Are Risk Free
It is important to know that STRIPS are not issued or sold directly to investors. In order to but U.S Treasury STRIPS, you need to use officially licensed financial institutions and U.S. government securities brokers and dealers. There are options in how the maturity of the STRIPS occur over the period of the investment. It can be from ten to thirty years. STRIPS are highly popular with investors who want to be sure they receive a known payment amount on a specific future date, because it is a very safe investment.
Treasury STRIPS allows liquidity in the marketplace because it gives investors several maturity options. Like other zero-coupon instruments STRIPS can be utilized to meet a wide range of investment goals because they are definitely going to have cash-flow values at specific future dates. They are attractive to investors with specific ideas in regards to interest rates, because prices of STRIPS are particularly sensitive to changes in interest rates.
STRIPS are more attractive when short-term interest rates are down. At these times short term bank rates and reinvesting bond proceeds are not alluring. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23196
History of T-Strips
STRIPS was launched in 1985. The name STRIPS was derived before the computer age, when the paper bonds were physically traded and the traders would tear off the interest coupons literally from the paper securities and resale the broken parts separately.
Under this program, the financial entity can provide the Treasury with standard treasury note or treasury bond that can be stripped. Not naked! :-) ..but stripped into individual instruments of cash flow. At this point the securities are returned to the financial entity.
For example, a 10-year note which is issued will be stripped into twenty interest payments, 2 annually or semi-annually for 10 years and one principal payment which will be due at its maturity date. All the twenty interest payments plus the single principal payment are converted to STRIPS, each of them will then become a separate security. The new separate securities are then identified as coupon strips for the interest payments and principal strips for the principal payment. Together they are referred to as Treasury STRIPS.
These Treasury STRIPS are separate zero-coupon securities. Nothing is different about them at all from the zero-coupon securities. As a matter of fact, to an investor, there is no distinction between a coupon strip and principal strip, although technically the Treasury STRIPS are not identically the same. In the example given, all twenty one coupons have a unique identifying number called the CUSIP number.
The STRIPS program requires that the "stripped" treasury securities are maintained in a book entry form with the fed wire. This enables the "strips" to be easily tracked, therefore making individual trading of the security possible.
T Strips Are Risk Free
It is important to know that STRIPS are not issued or sold directly to investors. In order to but U.S Treasury STRIPS, you need to use officially licensed financial institutions and U.S. government securities brokers and dealers. There are options in how the maturity of the STRIPS occur over the period of the investment. It can be from ten to thirty years. STRIPS are highly popular with investors who want to be sure they receive a known payment amount on a specific future date, because it is a very safe investment.
Treasury STRIPS allows liquidity in the marketplace because it gives investors several maturity options. Like other zero-coupon instruments STRIPS can be utilized to meet a wide range of investment goals because they are definitely going to have cash-flow values at specific future dates. They are attractive to investors with specific ideas in regards to interest rates, because prices of STRIPS are particularly sensitive to changes in interest rates.
STRIPS are more attractive when short-term interest rates are down. At these times short term bank rates and reinvesting bond proceeds are not alluring. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23196
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Looking for Treasury strips? Contact http://www.wallstreetcapitalfinancing.com at 1-877-278-7823 for more information. Also have MTN's, BG's, & offering Business Loan.
posted by X - Men @ 12:57 AM
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