T-Strips = Zero Risk Investment
T-Strips are an interesting investment tool that really is being used in the current economy more and more due to the safety net it provides. The word "STRIPS" is an acronym which stands for "Separate Trading of Registered Interest and Principal Securities." The thing unique about T-Strips is the fact that the coupons may be seperated from the principal of the coupons and traded seperately as zero coupon securities. This is especially important to banks, corporations, and large investors looking for a safe investment.
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 the STRIP program, a financial institution can present the US Treasury with a standard Treasury note, Treasury Bond or TIPS (Treasury Inflation- protected Security) to be "stripped." The Treasury then breaks or disintegrates the individual flows of cash into separate securities, after which it is returned to the financial institution.
For instance, a 10-year note which is just will be stripped into twenty interest payments, two for each year or semi-annually for 10 years and one principal payment which will be due at its maturity date. All 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. In fact, to an investor, there is not a difference between a coupon strip and principal strip, although technically the Treasury STRIPS are not identically the same. In the example given, all the twenty one coupons have its own unique identifying number or 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.
Risk-Free Investing Using United States Treastury Strips
The Treasury STRIPS normally mature over ten years out to thirty years. They are backed by the US government which makes them risk-free credits. STRIPS are not issued or sold directly to investors, only financial institutions such as investment banks and brokerage firms; government securities brokers and dealers can hold and purchase it.
STRIPS components can be reconstituted together into a fully constituted U. S. backed security in the commercial book-entry system. For this to happen, the licensed financial agent must get the right principal component along with all its unmatured interest components. When the minimum amounts of the components are brought together, the security is said to be reconstituted.
STRIPS are more popular when short-term interest rates are low. At these times short term bank rates and reinvesting bond proceeds are not desirable. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23210
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 the STRIP program, a financial institution can present the US Treasury with a standard Treasury note, Treasury Bond or TIPS (Treasury Inflation- protected Security) to be "stripped." The Treasury then breaks or disintegrates the individual flows of cash into separate securities, after which it is returned to the financial institution.
For instance, a 10-year note which is just will be stripped into twenty interest payments, two for each year or semi-annually for 10 years and one principal payment which will be due at its maturity date. All 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. In fact, to an investor, there is not a difference between a coupon strip and principal strip, although technically the Treasury STRIPS are not identically the same. In the example given, all the twenty one coupons have its own unique identifying number or 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.
Risk-Free Investing Using United States Treastury Strips
The Treasury STRIPS normally mature over ten years out to thirty years. They are backed by the US government which makes them risk-free credits. STRIPS are not issued or sold directly to investors, only financial institutions such as investment banks and brokerage firms; government securities brokers and dealers can hold and purchase it.
STRIPS components can be reconstituted together into a fully constituted U. S. backed security in the commercial book-entry system. For this to happen, the licensed financial agent must get the right principal component along with all its unmatured interest components. When the minimum amounts of the components are brought together, the security is said to be reconstituted.
STRIPS are more popular when short-term interest rates are low. At these times short term bank rates and reinvesting bond proceeds are not desirable. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23210
About the Author:
Looking for Treasury strips? Contact http://www.wallstreetcapitalfinancing.com at 1-877-278-7823 for more information. Also have MTN's, BG's, & offering Unsecured Business Loans.
posted by X - Men @ 12:59 AM
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