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This Day In Market History: US Treasury Begins Issuing STRIPS

This Day In Market History: US Treasury Begins Issuing STRIPS

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened

On this day in 1985, the federal government began allowing Treasury securities to be broken into STRIPS, or Separate Trading of Registered Interest and Principal of Securities.

Where The Market Was 

The Dow Jones Industrial Average closed at $1,282.02, while the S&P 500 closed at $181.60.

What Else Was Going On In The World

Foreigner’s “I Want To Know What Love Is” topped Billboard charts, and a ticket to the No. 1 box office hit “Beverly Hills Cop,” cost just $2.75.

STRIPS Hit The Market

The creation of STRIPS allowed investors to trade on the interest or principal of a note or bond, effectively hedging against interest-rate changes.

Also called “zero-coupon bonds,” returns on the low-risk, fixed-income securities are calculated by the difference between the bond’s trading or maturity value and the STRIPS’ purchase price.

The components can be reassembled into a full security through a financial institution or government securities broker holding all principal and unmatured interest components.

The option ultimately increased liquidity in the government bond market.

Related Links:

Why Increases In US Bond Yields Hurt Your Stocks

Short Considerations With Corporate Bond ETFs

Photo by Mohit Singh/Wikimedia. 


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