What is US Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities)?

US Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities), also called T-Strips, is a marketable debt security issued by financial institutions and backed by the US Treasury Department.

A financial institution purchases an original US Treasury Note/Bond, and strips its coupons from the principal into multiple Treasury STRIPS.

For example, Fidelity Investments can purchase a 10-year Treasury Note, and strip its 20 coupons from the principal into 21 Treasury STRIPS (20 Coupon STRIPS and 1 Principal STRIPS). Fidelity Investments can then sell these 21 Treasury STRIPS separately to different investors.

A US Treasury STRIPS has the following features:

• It has an issue date and a maturity date.
• It has a fixed face value, also called par value, for example, $10,000.00.
• It has a has no interest payments, so it is also called zero-coupon bond.
• It has a CUSIP (Committee on Uniform Securities Identification Procedures) number to identify the series of STRIPS with the same security features.

Here is a screenshot of a US Treasury STRIPS issued on November 15, 2014:

As you can see from the image, this US Treasury STRIPS has:

• An issue date of November 15, 2014, and a maturity date of November 15, 2044, defining a maturity term of 30 years.
• A total face value of $1,000,000.00.
• A CUSIP number of 912834PB8.
• A coupon type of "ZERO".
• Original issurance of "BOOK ENTRY".

Note that "BOOK ENTRY" refers to the CBES (Commercial Book-Entry System) operated by the US Federal Reserve Banks. It is a tiered system where most marketable Treasury securities are held electronically through intermediaries like banks and brokerage firms.

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