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For official details on how these securities are managed, you can visit the TreasuryDirect STRIPS page .
: A standard bond is "stripped" into its principal repayment and its individual interest (coupon) payments.
: Even though no cash interest is paid until maturity, the annual increase in the strip's value is often taxed as "phantom income" unless held in a tax-deferred account like an IRA. Strategic Use Cases
: Each strip "matures" on the date the original payment was scheduled to occur. Investment Characteristics
: Each resulting strip becomes a zero-coupon bond , meaning it does not pay periodic interest but is instead sold at a deep discount to its face value.
: Because they are backed by the U.S. Treasury, they carry minimal default risk, though they are highly sensitive to interest rate changes before they mature.