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Separate Trading of Registered Interest and Principal Securities, Treasury STRIPS

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Definition of 'Separate Trading of Registered Interest and Principal Securities, Treasury STRIPS'

Treasury STRIPS are T-Notes, T-Bonds and TIPS whose interest and principal portions of the security have been separated (also known as stripping). These are then be sold separately in units of $1000 face value in the secondary market.

In the days before computerization the paper bonds had detachable coupons that were redeemed when they became due. The act of tearing these strips of coupons off and trading them separately lent its name to STRIPS. When the government issues treasury instruments with coupons such as T-Notes, T-Bonds and TIPS it always sells them intact. The act of stripping the coupons in done in the secondary market so they can only be bought from brokers and not from the United States Treasury.

A bond with its coupons stripped off has the same characteristics as a zero-coupon bond.

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