Treasury Receipts and STRIPS
Chapters in this video
- 0:00 Carla's 10-year target and reinvestment risk
- 1:31 What STRIPS are and the 21-piece breakdown
- 2:49 $100 minimum and the TreasuryDirect trap
- 3:32 Phantom income and OID tax treatment
- 4:27 Pre-1985 TIGRs and CATS Treasury receipts
- 5:34 Counterparty risk vs full faith and credit
- 6:43 Rapid-fire exam recap
What this video covers
- How Separate Trading of Registered Interest and Principal of Securities (STRIPS) are created from eligible Treasury notes, bonds, and Treasury Inflation-Protected Securities (TIPS)
- Why a 10-year Treasury note strips into exactly 21 separate zero-coupon securities, with 20 interest strips plus 1 principal strip
- The $100 minimum, the deep-discount purchase, and the fact that STRIPS are only available through brokers and dealers, never directly from TreasuryDirect
- Why STRIPS eliminate reinvestment risk and lock in yield at purchase, making them ideal for a known future liability like a balloon payment or tuition target
- How phantom income works under original issue discount (OID) rules, why the annual accretion is taxed as ordinary income, and why STRIPS belong in tax-deferred accounts
- The history of pre-1985 Treasury receipts, including Treasury Investment Growth Receipts (TIGRs) from Merrill Lynch and Certificates of Accrual on Treasury Securities (CATS) from Salomon Brothers
- The exam-critical distinction that STRIPS are direct obligations of the U.S. government, while Treasury receipts are trust instruments that carry counterparty risk
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