Strips

Strips are securities created by separating the payments (each interest payment and the repayment of the principal) of a bond. Each cashflow is securitised to create a separate zero coupon bond.

Strips are most often derived from government bonds. In many countries, including the US and the UK, there is official support for creating strips.

The use of strips offers investors more flexibility. The resulting availability of a broader range of zero coupon bonds makes it easier to construct portfolios that manage interest rate risk.

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