YTM (Yield To Maturity) on US Treasury STRIPS

Q

What is YTM (Yield To Maturity) of US Treasury STRIPS?

✍: FYIcenter.com

A

Yield on US Treasury STRIPS (T-STRIPS) refers to the equivalent compounding interest rate for all revenues generated during the entire investment term. YTM (Yield To Maturity) refers to the yield of a T-STRIPS, if you hold it until its maturity date.

Since there is no coupon payments on T-STRIPS, we can use the same present value expression without the coupon components:


  If n = 1,  PV=
  Par1
  +0.5×
  YTM×f

  If n > 1,  PV=
  Par(1
  +0.5×
  YTM)n-1+f
  
PV=Present Value (Investment)
PV=Par*Price/100
Par=Par value (Face value)
n=Number of coupon periods
f=1 - Days/Period (first period fraction, 1 for full period)
Days=Accrued days (days since the last payment date)
Period=Days in the first period

Note that even there is no coupon payments on T-STRIPS, we still use the coupon payment period of 6 months as the interest compounding period in the same way as the original T-Note/T-Bond. See "Performance Measurements of US Treasury Note/Bond" tutorials on YTM calculation for T-Note/T-Bond.

Without coupon payments, the present value expression can be inversed to give the YTM expression:


  If n = 1,  YTM=2×
  ParPV
  -1f

  If n > 1,  YTM=2×
  (ParPV
  1n-1+f
   -1)

Here is an example of 30-year T-STRIPS available on Fidelity Investments to trade. It shows a list of bidding and asking quotes with prices and YTMs as of Friday, 2025-06-20. The first bidding quote indicates:

CUSIP: 912834PB8
Description: U S TREAS SEC STRIPPED INT PMT 0.00000% 11/15/2044ZERO CPN 
Maturity: 11/15/2044

Price: $36.839 (for $100.00 par value)
Yield: 5.216% (YTM - Yield To Maturity)
Settlement Date: 2025-06-23 (Next business day)
US Treasury STRIPS - Buy/Sell with Fidelity Investments
US Treasury STRIPS - Buy/Sell with Fidelity Investments

We can use this example to verify the YTM (Yield To Maturity) definition:


  YTM=2×
  (ParPV
  1n-1+f
   -1)

  YTM=2×
  (10036.839
  120-1+0.7880
   -1)

           =
  0.052159379449730814=5.216%

The output matches well with the bidding quote displayed on Fidelity Investments:

PV = 36.839 (Price as Present Value)
YTM = 0.05216 (Yield as YTM - Yield To Maturity)
Par = 100.0 (Par value is an assumption)
n = 20 (There are 20 coupon periods left)
Days = 145 ("2025-11-15" - "2025-06-23")
Period = 184 ("2025-11-15" - "2025-05-15")
f = 1 - Days/Period = 1 - 145/184 = 0.7880 (first period fraction)

You can also use our YTM calculator to validate the result. Click this link "T-STRIPS 912834PB8 settled on 2025-06-23 with a price of $36.839", you will see the purchase price of 5.2159% displayed.

Related topics:

YTM (Yield To Maturity) to Price Converter for T-STRIPS

Price to YTM (Yield To Maturity) Converter for T-STRIPS

 

Imputed Interest of US Treasury STRIPS

Buy Treasury Bills with Fidelity Investments

Introduction of US Treasury STRIPS

⇑⇑ US Treasury Securities

2025-06-22, ∼407🔥, 0💬