T-Strips = Zero Risk Investment
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.
History of T-Strips
People call then T-STRIPS due to the fact that they are issued by the Treasury. The background behind the start of T-Bill trading took a path closely related to the dawn of the computer age. In the era of break dancing, rubics cube, and parachute pants, there was a new method of investing that was being born on the technological backbone of new computer software and hardware. T-Strip trading was much different than the old style coupon tearing of the old style zero coupon bonds. The US Treasury made the new form official by passing out identifications for the new STRIPS called a CUSIP code.
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 example, a 10-year note which is issued will be stripped into twenty interest payments, two for each year or semi-annually for ten and one principal payment payment due at maturity date. All twenty interest payments plus the single principal payment are broken up into STRIPS form, 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. Jointly they are called 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 identically the same. In the example given, all the twenty one coupons have its own unique identifying number or the CUSIP number.
The STRIPS program mandates that all the disaggregated or "stripped" securities be kept in a book-entry system for easier tracking and transfer efficiency; this is the purpose of the said CUSIP number. Now, all the coupons can be traded and held individually.
T Strips Are Risk Free
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 creates liquidity in the financial markets because it gives investors several maturity tochose from. Similar to other zero-coupon instruments STRIPS can be used to meet a wide range of investment goals because they are known to have cash-flow values at a known future date. They are attractive to investors with specific ideas regarding interest rates, because prices of STRIPS are particularly susceptible to fluctuations in interest rates.
STRIPS are more attractive when short-term interest rates are low. 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. - 23204
History of T-Strips
People call then T-STRIPS due to the fact that they are issued by the Treasury. The background behind the start of T-Bill trading took a path closely related to the dawn of the computer age. In the era of break dancing, rubics cube, and parachute pants, there was a new method of investing that was being born on the technological backbone of new computer software and hardware. T-Strip trading was much different than the old style coupon tearing of the old style zero coupon bonds. The US Treasury made the new form official by passing out identifications for the new STRIPS called a CUSIP code.
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 example, a 10-year note which is issued will be stripped into twenty interest payments, two for each year or semi-annually for ten and one principal payment payment due at maturity date. All twenty interest payments plus the single principal payment are broken up into STRIPS form, 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. Jointly they are called 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 identically the same. In the example given, all the twenty one coupons have its own unique identifying number or the CUSIP number.
The STRIPS program mandates that all the disaggregated or "stripped" securities be kept in a book-entry system for easier tracking and transfer efficiency; this is the purpose of the said CUSIP number. Now, all the coupons can be traded and held individually.
T Strips Are Risk Free
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 creates liquidity in the financial markets because it gives investors several maturity tochose from. Similar to other zero-coupon instruments STRIPS can be used to meet a wide range of investment goals because they are known to have cash-flow values at a known future date. They are attractive to investors with specific ideas regarding interest rates, because prices of STRIPS are particularly susceptible to fluctuations in interest rates.
STRIPS are more attractive when short-term interest rates are low. 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. - 23204
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Looking for Treasury strips? Contact http://www.wallstreetcapitalfinancing.com at 1-877-278-7823 for more information. Also have MTN's, BG's, & offering Business Loans.
posted by X - Men @ 2:54 AM
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