What are 'Treasury STRIPS'
Treasury STRIPS are fixedincome securities sold at a significant discount to face value and offer no interest payments because they mature at par. STRIPS is an acronym for Separate Trading of Registered Interest and Principal of Securities. These zerocoupon bonds come about when the bond's coupons are separated from the bond or note; an investor's return is determined by the difference between the purchase price and the bond's trading value, or face value if held to maturity.
BREAKING DOWN 'Treasury STRIPS'
Backed by the U.S. government, STRIPS, which were first introduced in 1985, offer minimal risk and some tax benefits in certain states, replacing TIGRs and CATS as the dominant zerocoupon U.S. security. Although you receive no tangible income, you typically still have to pay federal income tax on the bond's accretion for the year. All issues from the Treasury with a maturity of 10 years or longer are eligible for the STRIPS process. STRIPS cannot be purchased directly from the Federal Reserve or a governmental agency. The securities can be bought by private brokerages.
Coupon Stripping
The act of detaching the interest payments is called coupon stripping. These coupons become separate securities, with the principal payment due at maturity, with no interim coupon payment.
For instance, a 10year bond with a $40,000 face value and a 5% annual interest rate can be stripped. Assuming it originally pays coupons semiannually, 21 zerocoupon bonds can be created. This includes the 20 semiannual coupon payments. Each stripped coupon has a $1,000 face value, which is the amount of each coupon. There is also a bond created from the principal payment at maturity. All 21 securities are distinct and trade in the market.
Popularity of STRIPS
There are several reasons STRIPS have become a popular investment. They have a very high credit quality since the bonds are backed by U.S. Treasury securities. Since STRIPS are sold at a discount, investors do not need a large stash of cash to purchase the bonds. If STRIPS are held to maturity, investors know their payout.
STRIPS offer a range of maturity dates since they are based on the dates of the interest payments. If an investor wishes to sell prior to maturity, the market is very liquid.
Tax Considerations
Generally, taxes are due for the interest earned each year, even though there is no cash payment until maturity or when the STRIPS are sold. However, a taxdeferred account, such as an individual retirement account (IRA) and nontaxable accounts, which include pension funds, avoid this taxation. Each holder of STRIPS receives a report detailing the amount of interest income earned.

Strip
1. For bonds, the process of removing coupons from a bond and ... 
Futures Strip
The sale or purchase of futures in sequential delivery months ... 
Interest Only (IO) Strips
The interest portion of mortgage, Treasury or bond payments, ... 
Strip Bond
A bond where both the principal and regular coupon paymentswhich ... 
Servicing Strip
A security created by the stream of cash flows that result from ... 
Stripped MBS
A trust comprised of mortgagebacked securities which are split ...

Investing
Introduction To STRIPS
STRIPS provide an alternative form of bond for fixedincome investors who need definite cash flows at specific times. Read the article to find out how. 
Investing
Comparing Yield To Maturity And The Coupon Rate
Investors base investing decisions and strategies on yield to maturity more so than coupon rates. 
Personal Finance
â€˜Retiredâ€™ Too Soon? How to Reenter the Workforce After 50
Here's what you need to know to survive financially and reenter the workforce when you're over 50 and a layoff has forced you to "retire" too soon. 
Investing
Government Bond ETFs to Date 2016 Performance Review (ZROZ, EDV)
Find out how government bond exchangetraded funds (ETFs) are performing YTD in 2016, and which are the best and worst performers. 
Financial Advisor
Simple Math for FixedCoupon Corporate Bonds
A guide to help to understand the simple math behind fixedcoupon corporate bonds. 
Trading
Strip Options: A Market Neutral Bearish Strategy
Strip Options are market neutral trading strategies with profit potential on either side price movement, with a "bearish" skew. 
Financial Advisor
Using Excel PV Function to compute Bonds PV
To determine the value of a bond today  for a fixed principal (par value) to be repaid in the future at any predetermined time  we can use an Excel spreadsheet. 
Investing
If I Buy A $1,000 10Year Bond With A 10% Coupon, Will I Receive $100 Each Year?
Investors can count on a fixedincome security paying them a certain amount of cash as long as the security is held until maturity and the issuer doesnâ€™t default.

What is the difference between yield to maturity and the coupon rate?
A bond's coupon rate is the actual amount of interest income earned on the bond each year based on its face value. The yield ... Read Answer >> 
Can the marginal propensity to consume ever be negative?
Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... 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 do I calculate yield to maturity of a zero coupon bond?
Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than ... Read Answer >> 
If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive ...
Simply put: yes, you will. The beauty of a fixedincome security is that the investor can expect to receive a certain amount ... Read Answer >> 
How do I calculate yield to maturity in Excel?
Learn how to calculate a bond's yield to maturity in Microsoft Excel, which is one of the best methods of comparing bonds ... Read Answer >>