Stripped US Treasury Zero Bonds are zero-coupon Treasury receipts. Typically, the zero-coupon or notes are not issued directly by the U.S. Department of Treasury, therefore the most important investment banking firms have created this synthetic zero-coupon Treasury receipts. The first Stripped Securities were launched in 1982 by Merrill Lynch (the so-called TIGRs - Treasury Income Growth Receipts) and Salomon Brothers (the so-called CATS - Certificates of Accrual on Treasury Securities). More in general, all types of zero-coupon treasuries were associated to a particular firm, so they were referred to as trademark zero-coupon Treasury securities. However, since February 1985, the U.S. Treasury has introduced the STRIP (Separate Trading of Registered Interest and Principal of Securities) program to facilitate the creation of Treasury strips. Treasury strips are direct obligations of the U.S. government that have completely replaced the trademarks. The zero-coupon are created by firms through the process of coupon stripping. Following this process, investors are allowed to hold and trade the components of eligible Treasury notes and bonds as separate securities. First, firms buy Treasury bonds and deposit them in a bank custody account. Then, notes or bonds are ‘‘stripped’’: the firm issues a receipt representing an ownership interest in each coupon payment and a separate receipt for the ownership of the principal (called the corpus). Currently, all new Treasury bonds and notes with maturities of 10 years and longer are eligible for STRIP.

Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

Editor: Bianca GIANNINI