The Investment Tool Known As T-Strips
T-Strip are a great investment tool if you know what they are. The term STRIP is an acronym which stands for "Separate Trading of Registered Interest and Principal Securities." T Strips are U.S. Treasury securities that are issues by the Treasury for zero-coupon securities which have a maturity period over one year. The STRIPS program gives investors much more flexiblity in how they trade for the securities.
History of T-Strips
The advent of the STRIPS program came with the advent of the computer age. In 1985, the zero coupon market exploded in this innovative new way of investment trading using U.S. Treasury securities. The syatem was based on the new abilities of modern technology to maintain a database accessible through the Fed Wire, that made it possible to convert into a series of zeros. Not long after this, the U.S. Treasury made it official by giving each T-Strip the official identification callled the CUSIP number.
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 newly will be stripped into twenty interest payments, two annually or semi-annually for 10 years and one principal payment payment due at maturity date. All the twenty interest payments plus the single principal payment are broken up into 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 not a difference between a coupon strip and principal strip, although technically the Treasury STRIPS are not identical. In the example given, all twenty one coupons have a unique identifying number called the CUSIP number.
The STRIPS program mandates that all the disaggregated or "stripped" securities be kept in a book-entry system for easier tracking and transfer efficiency; this is the purpose of the said CUSIP number. Now, all the coupons can be traded and held individually.
T Strips Provide Risk Free Investing
A Treasury note with ten years remaining to maturity has a single principal payment which is due at maturity. When notes are set up at twenty interest payments, the payments are made every six month for ten years. It is at this point that each part of the twenty payments becomes a seperate security.
STRIPS components can be reconstituted together into a fully constituted U. S. backed security in the federal book-entry system. For this to happen, the licensed financial broerage must get the right principal component along with all the unmatured interest components. When the minimum amounts of each component are brought together, the security is considered reconstituted.
STRIPS are more attractive when short-term interest rates are low. 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. - 23218
History of T-Strips
The advent of the STRIPS program came with the advent of the computer age. In 1985, the zero coupon market exploded in this innovative new way of investment trading using U.S. Treasury securities. The syatem was based on the new abilities of modern technology to maintain a database accessible through the Fed Wire, that made it possible to convert into a series of zeros. Not long after this, the U.S. Treasury made it official by giving each T-Strip the official identification callled the CUSIP number.
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 newly will be stripped into twenty interest payments, two annually or semi-annually for 10 years and one principal payment payment due at maturity date. All the twenty interest payments plus the single principal payment are broken up into 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 not a difference between a coupon strip and principal strip, although technically the Treasury STRIPS are not identical. In the example given, all twenty one coupons have a unique identifying number called the CUSIP number.
The STRIPS program mandates that all the disaggregated or "stripped" securities be kept in a book-entry system for easier tracking and transfer efficiency; this is the purpose of the said CUSIP number. Now, all the coupons can be traded and held individually.
T Strips Provide Risk Free Investing
A Treasury note with ten years remaining to maturity has a single principal payment which is due at maturity. When notes are set up at twenty interest payments, the payments are made every six month for ten years. It is at this point that each part of the twenty payments becomes a seperate security.
STRIPS components can be reconstituted together into a fully constituted U. S. backed security in the federal book-entry system. For this to happen, the licensed financial broerage must get the right principal component along with all the unmatured interest components. When the minimum amounts of each component are brought together, the security is considered reconstituted.
STRIPS are more attractive when short-term interest rates are low. 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. - 23218
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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 Financing.
posted by X - Men @ 2:53 AM
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