T-Strips as Risk-Free Investments
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.
Background Information Behind Treasury 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, 2 annually or semi-annually for ten and one principal payment which will be due at its maturity date. All the 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. There is no practical difference. In fact, to an investor, there is no distinction between a coupon strip and principal strip, although in reality the Treasury STRIPS are not identical. In this example, all twenty one coupons have a unique identifying number called the CUSIP number.
When a T Strip is stripped through the commercial book-entry system each interest payment and the principal payment becomes a separate zero-coupon security. At this time, each component of the T-strip is given its own identifying number called the CUSIP number and can be held or traded separately.
T Strips Provide Risk Free Investing
It is important to know that STRIPS are not issued or sold directly to investors. In order to but U.S Treasury STRIPS, you need to use officially licensed financial institutions and U.S. government securities brokers and dealers. There are options in how the maturity of the STRIPS occur over the period of the investment. It can be from ten to thirty years. STRIPS are highly popular with investors who want to be sure they receive a known payment amount on a specific future date, because it is a very safe investment.
Treasury STRIPS allows liquidity in the investing world because it gives investors several maturity options. Similar to other zero-coupon instruments STRIPS can be used to acheive a wide range of objectives because they are definitely going to have cash-flow values at a known future date. They are attractive to investors with specific opinions regarding interest rates, because prices of STRIPS are particularly susceptible to changes in interest rates.
STRIPS are more popular when short-term interest rates are down. At these times short term bank rates and reinvesting bond proceeds are not appealing. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23159
Background Information Behind Treasury 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, 2 annually or semi-annually for ten and one principal payment which will be due at its maturity date. All the 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. There is no practical difference. In fact, to an investor, there is no distinction between a coupon strip and principal strip, although in reality the Treasury STRIPS are not identical. In this example, all twenty one coupons have a unique identifying number called the CUSIP number.
When a T Strip is stripped through the commercial book-entry system each interest payment and the principal payment becomes a separate zero-coupon security. At this time, each component of the T-strip is given its own identifying number called the CUSIP number and can be held or traded separately.
T Strips Provide Risk Free Investing
It is important to know that STRIPS are not issued or sold directly to investors. In order to but U.S Treasury STRIPS, you need to use officially licensed financial institutions and U.S. government securities brokers and dealers. There are options in how the maturity of the STRIPS occur over the period of the investment. It can be from ten to thirty years. STRIPS are highly popular with investors who want to be sure they receive a known payment amount on a specific future date, because it is a very safe investment.
Treasury STRIPS allows liquidity in the investing world because it gives investors several maturity options. Similar to other zero-coupon instruments STRIPS can be used to acheive a wide range of objectives because they are definitely going to have cash-flow values at a known future date. They are attractive to investors with specific opinions regarding interest rates, because prices of STRIPS are particularly susceptible to changes in interest rates.
STRIPS are more popular when short-term interest rates are down. At these times short term bank rates and reinvesting bond proceeds are not appealing. T- Strips, being zero-coupon securities, do not have reinvestment risk. - 23159
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Looking for Zero-coupon Securities? Contact http://www.wallstreetcapitalfinancing.com at 1-877-278-7823 for more information. Also have MTN's, BG's, & offering Business Loan.
posted by X - Men @ 9:39 AM
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