STRIPSThe Separate Trading of Registered Interest and Principle (STRIPs)program began in 1995. Astrip is a Treasury security that has been separated into its component parts: each interest payment andthe principle payment become a separate zero-coupon security. For example, a 10-year Treasury noteconsists of 1 principle payment, which the holder receives at maturity, and 20 semiannual interestpayments. When this note is stripped, 21 separate securities are created. Today, most fixed-principaland inflation-indexed T-notes and T-bonds are eligible for the Treasury’s strip program.The Treasury does not issue strips directly to investors. Instead, financial institutions or registereddealers and brokers buy Treasury securities whole at auction and then create strip components to meetthe demands of customers. To do this, the firms instruct the Treasury Department to electronicallyrecode each coupon payment and the face value payment as a separate security in the book entrysystem. With this done, the firm now can sell the “new” strip securities individually or collectively in
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