strips - Investment & Finance Definition
Stands for Separate Trading of Registered Interest and Principal of Securities, which lets investors hold or trade the interest and principal components of Treasury notes and bonds separately. The program was first introduced in January 1985.
STRIPS often are used by state lotteries, which invest the present value of large lottery prizes in Treasury notes or bonds in order to ensure that funds are available to meet payment obligations. STRIPS are popular for tax-advantage plans such as individual retirement accounts and 401(k) savings plans. Pension funds may buy STRIPS in order to match the income from them to their liabilities.
For example, with a ten-year note that is STRIPPED, the principal payment becomes a separate zero-coupon security that will be paid when it matures in ten years. Then, the 20 interest payments that are made semiannually remain and the prin-cipal and the interest become separately traded securities.