Series 6: 4.2.11.3. STRIPS (Separate Trading Of Registered Interest And Principal Of Securities)

4.2.11.3. STRIPS (Separate Trading of Registered Interest and Principal of Securities)

As you just learned, except for short-term Treasury bills, Treasury securities pay investors in two ways: semiannual interest payments and payment of the par (face) value at maturity. But some investors want to receive one lump sum payment at maturity, such as with a Treasury bill but with a much longer maturity, much like a zero coupon bond.

Since the U.S. Treasury does not offer long-term zero coupon bonds, private issuers, such as broker-dealers, have stepped in and created STRIPS (Separate Trading of Registered Interest and Principal of Securities), which are long-term zero coupon bonds consisting of U.S. Treasury securities. Private issuers do this by purchasing long-term Treasury notes and bonds and separating the coupons and the principal and repackagi