What is 'Coupon Stripping'
Coupon stripping is the separation of a bond's periodic interest payments from its principal repayment obligation to create a series of individual securities. In coupon stripping, the underlying bond becomes a zerocoupon bond and each interest payment becomes a separate zerocoupon bond. Each bond will sell at a different discount to face value based on its time to maturity.
BREAKING DOWN 'Coupon Stripping'
If an investment bank held a $50 million Treasury bond that paid 5% interest annually for five years, coupon stripping would turn that bond into six new zerocoupon bonds: one $50 million bond that matured in five years and five $2.5 million bonds that would each mature in one of the coming five years. Coupon stripping can also divide up a larger bond with a particular interest rate into a series of smaller bonds with different interest rates to satisfy investors' demands for particular types of bonds. This practice is seen in the mortgagebacked security market.

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What is a stripped bond?
The quick answer to this question is that a stripped bond is a bond that has had its main components broken up into a zerocoupon ... Read Answer >> 
What is the difference between a zerocoupon bond and a regular bond?
The difference between a zerocoupon bond and a regular bond is that a zerocoupon bond does not pay coupons, or interest ... Read Answer >> 
How does an investor make money on a zero coupon bond?
Learn about investing in zerocoupon bonds, exactly how they work as an investment vehicle, and their advantages and disadvantages ... Read Answer >> 
How does a bond's coupon rate affect its price?
Find out how a bond's coupon rate influences its price, including the role of governmentdictated interest rates and the ... Read Answer >> 
How does a bond's coupon interest rate affect its price?
Find out why the difference between the coupon interest rate on a bond and prevailing market interest rates has a large impact ... Read Answer >> 
Why do interest rates tend to have an inverse relationship with bond prices?
At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer ... Read Answer >>