Treasury Investment Growth Receipts (TIGRs)
What Are Treasury Investment Growth Receipts (TIGRs)?
Treasury Investment Growth Receipts (TIGRs), issued from 1982 until 1986, were zero-coupon bonds in light of U.S. Treasury bonds held by Merrill Lynch.
How Treasury Investment Growth Receipts (TIGRs) Work
In 1982, Merrill Lynch made special purpose vehicles (SPV) that would buy coupon-bearing Treasury securities. These large investors would "strip" the coupons from the vehicle, making two separate securities. One bond was the equivalent of a zero-coupon certificate, and the other was a bunch of coupons that may be appealing to different investors.
TIGRs were fixed-income securities without coupons, so no interest payments were made. They were sold at a deep discount to par value. That discount changed relying upon how long there was left until maturity and winning interest rates.
In any case, these bonds and notes could be reclaimed at maturity at full face value. The difference between the discounted purchase price and the face value they received at redemption was the yield that investors earned for holding TIGRs. The discount pricing structure depended on bond maturity and the ongoing expectations of future interest rates.
However they are not generally issued, TIGRs are as yet accessible on the secondary bond market.
Utilization of Treasury Investment Growth Receipts (TIGRs)
Treasury Investment Growth Receipts (TIGRs) and comparative securities became famous in the mid 1980s in light of the fact that interest rates were declining pointedly from generally high levels found in the late 1970s. As interest rates fell, bond and note values rose, especially those with longer maturities and less coupons. The highest demand was for zero-coupon securities.
Notwithstanding TIGRs, different firms offered comparable securities, known as "cats" as a result of their abbreviations. These included Certificates of Accrual on Treasury Securities (CATS), issued by Salomon Brothers, and Lehman Investment Opportunity Notes (LIONs), made by Lehman Brothers.
In 1985, notwithstanding, Merrill Lynch discontinued TIGRs, and different "cats" became obsolete too on the grounds that the U.S. Treasury started giving its own zero-coupon bonds called Separate Trading of Registered Interest and Principal of Securities (STRIPS).
Interest Rates and Treasury Investment Growth Receipts (TIGRs)
The demand for zero-coupon bonds and notes, like TIGRs and other also structured securities, filled in the climate of falling interest rates.
For instance, consider a 30-year bond with a face value of $1,000, issued at a rate of 5% paid annually. The security would have 30 coupons, each redeemable in successive years for $50 each. At an annual interest rate expectation of 5%, the bond's redemption of $1,000 would cost about $232 when issued. Following 30 years, the redemption of the bond itself is for $1,000.
Such a bond would be worthless, stripped of those annual coupons payable over the term of the bond. Its worth would rely altogether upon the present value (PV) of the $1,000 face value in 30 years, with its market price in view of winning interest rate expectations. Assume the interest rate tumbled to 3% in the next year. Presently, the bond with 29 years to maturity would be worth about $412.
Highlights
- Merrill Lynch stopped giving TIGRs on the grounds that the U.S. government started giving its own zero-coupon bonds, making TIGRs obsolete.
- The yield that investors earned for holding TIGRs separated the discounted purchase price and the face value they received at redemption.
- Treasury Investment Growth Receipts (TIGRs) were zero-coupon bonds in light of U.S. Treasury bonds held by Merrill Lynch.
- However TIGRs are not generally issued today, they are as yet accessible on the secondary bond market.
- TIGRs and comparable securities became famous in the mid 1980s in light of the fact that interest rates were declining pointedly from the generally high levels of the late 1970s.
