Categories
Investing

What are stripped bonds?

Stripped U.S. treasury bonds explained.

Stripped U.S. treasury bonds are bonds that are generally sold at lower prices than their face value. If you can find a stripped bond to purchase, there is a chance that you will get more money out of the deal than you would if you were buying the bond outright. There are a few key differences, however, due to the way in which treasury bonds are stripped down.

Stripped U.S. treasury bonds do not have any interest payments. This means that you’ll get the face value of the bond after it matures, but you will not get any more money than that. While it might sound bad at first that you will not be getting interest payments, you should consider that these bonds are sold at a considerable discount off the face value. As a result, you are likely to get more money from a stripped bond.

Normal treasury bonds consist of two parts, the bond that shows how much money you have invested in the treasury, and the interest. The interest is also called the coupon. When a bond is stripped, the coupon and the rest of the bond are separated and sold to different people. Therefore, if you buy a stripped bond, you can get a bond at a considerable discount. You will not receive interest payments, but you will get more money back after your bond matures. This is a great option if you are looking to invest in bonds, but you do not have enough money to buy bonds at the normal face value.

The other thing that you should keep in mind is that since you will not be getting any interest on the bond, you will not get a return for your money until after the bond has already matured. This might be a disadvantage if you do not want to invest your money in that way. It may also be more difficult to sell stripped bonds before the maturity date, since there is no way for the bonds to be stripped and resold again.

Overall, however, you should find that stripped U.S. treasury bonds are a great way to invest for a lesser amount of money than you would normally have to spend for that investment.