DEFINITION of 'Stripped Yield'
A measure of the non-collateralized, independent return of a bond or warrant after all the monetary incentives and features have been removed. Stripped yields measures the return on only the debt portion of a bond/warrant. By removing additional features, investors can determine meaningful comparisons between convertible and non-convertible securities and debt instruments.
BREAKING DOWN 'Stripped Yield'
For example, by removing the built-in interest features and principal guarantees present in old Brady bonds, investors were able to immediately comprehend the underlying risk of the issue. Evaluating the stripped yield is also helpful in assessing many of today's debt securities, which feature embedded call options, "stepped" (increasing) coupons and the like.