Certificate of Government Receipts (COUGR)
What Is a Certificate of Government Receipts (COUGR)?
A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that is stripped of its coupon payments. The coupon portion of a Treasury is held by an intermediary dealer, like a bank, while COUGRs just pay an investor the face value at maturity. Even without the coupon payments, COUGRs are as yet attractive to investors on the grounds that the bond is sold at a discount to face value.
Understanding a Certificate of Government Receipts (COUGR)
A Certificate of Government Receipts addresses one of several assortments of stripped U.S. Treasury securities. Normally, when an investor buys a U.S. Treasury bond, they hope to receive ordinary, semi-annual coupon payments at a fixed interest rate until maturity, at which point the bond pays back its principal.
An investment firm creates a stripped bond by purchasing a normal bond and afterward accounting separately for its principal and interest cash flow parts. The institution then sells the principal part of the bond without the coupon.
All in all, when an investor purchases a stripped bond they do so expecting just to receive the face value of the bond at maturity. To make the transaction attractive to investors, the institutions that sell stripped bonds do as such at a discount to the face value of the bond.
The investor's return comprises exclusively of the difference between the face value of the bond at maturity and the discounted price the investor pays at purchase.
The Family of Stripped Bonds
Between about 1982 and 1986, different investment firms offered their own kind of stripped Treasury bonds. BNP Paribas offered COUGRs as a synthetic investment. Different options available during the 1980s included Certificates of Accrual on Treasury Securities (CATS), sold by Salomon Brothers, Treasury Income Growth Receipts (TIGRs), sold by Merrill Lynch, and Lehman Investment Opportunity Notes (LIONs), sold by Lehman Brothers.
The abbreviations for stripped securities (CATS, TIGRs, LIONs) earned them the epithet of the catlike family of securities.
The U.S. Treasury presented Separate Trading of Registered Interest and Principal of Securities (STRIPS) in 1985, permitting the sale of the principal and coupon parts of Treasury bonds as a government security.
STRIPS act exactly as other stripped bonds act and by eliminating the financial institution from the stripping equation, STRIPS successfully killed the market for new issues of such securities from banks. Interested investors might in any case have the option to track down COUGRs, TIGRs, and CATS on secondary bond markets, nonetheless.
Stripped Bonds versus Zero-Coupon Bonds
Stripped bonds share similitudes with zero-coupon bonds. From the investor's standpoint, both offer an issuance at an attractive discount to face value and pay face value at maturity. From the guarantor's standpoint, notwithstanding, the two assortments act in an unexpected way.
Stripped bonds get from an interest-bearing bond, though zero-coupon bonds basically offer the difference among discounted and face value in lieu of coupon payments. Coupon payments for stripped bonds actually exist decoupled from the bond's principal. Much of the time, this permits bond traders to sell every coupon payment as a standalone zero-coupon bond.
Features
- A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that is stripped of its coupon payments and just pays an investor the face value at maturity.
- Other "stripped" bonds have existed over the long run, remembering Certificates of Accrual for Treasury Securities (CATS), Treasury Income Growth Receipts (TIGRs), and Lehman Investment Opportunity Notes (LIONs).
- The coupon portion of the bond is stripped and held by an intermediary institution and just the principal portion is sold to an investor.
- Even without the coupon payment, COUGRs are attractive to investors since they are sold at a discount to face value. An investor's return is the difference between the face value and the discount price.
FAQ
What Is the Benefit of Purchasing STRIPS?
STRIPS are really great for investors who like to know the exact value of money being received at a specific point in time. STRIPS will continuously have a specific maturity date and will pay out their face value. The investor will know the amount they will receive as a return as it will be the difference between the face value of the bond and the discount price they paid for it. During the time till maturity, an investor will have a negative cash flow, however the returns at maturity might be better than traditional bonds.
How Often Do STRIPS Pay Interest?
The spans wherein STRIPS pay interest relies upon the maturity of a bond. For instance, a U.S. Treasury note that develops in 10 years will pay 20 interest payments; one payment like clockwork more than a 10-year time span.
Might I at any point Buy STRIPS Directly From the U.S. Treasury?
No. Investors can't buy STRIPS straightforwardly from the U.S. Treasury. The main way investors can gain access to STRIPS is through financial institutions and government securities brokers and dealers that sell them.
