TIPS and STRIPS Larry Stafford BA 543. Bonds: Remembering The Basics Principal Value Coupon Market Value Maturity.

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Presentation transcript:

TIPS and STRIPS Larry Stafford BA 543

Bonds: Remembering The Basics Principal Value Coupon Market Value Maturity

Treasury Bond Interest Payment 6mo Interest Payment 12mo Interest Payment 18mo Interest Payment 24mo Interest Payment 30mo Interest Payment 36mo Maturity Payment 36mo Treasury Bond Separate Trading of Registered Interest and Principal Securities (STRIPS)

Pricing of STRIPS Source: Wall Street Journal

STRIPS What good are they? – Lump Sum Savings Events – Eliminate Reinvestment Risk – No Credit Risk Taxes – The Good – The Bad – The Ugly

History of STRIPS Treasury Animal Control 1985: US Treasury STRIPS Program LIONS, TIGRS, and DOGS … oh my! 1982: Created By Financial Institutions

A Brief Interlude With Inflation Source: US BLS

Principal Value Inflation (CPI) Adjustment Treasury Inflation Protected Securities (TIPS)

TIPS What good are they? – Removing Risk of Inflation – No Credit Risk Investments Taxes – Pay as you go

History of TIPS You Want How Much For That 80’s Rock Cassette Tape? – 1997: US Treasury Began Offering TIPS

Inflation Revisited Source: US BLS

How Can I Get My Own TIPS and STRIPS? Broker Mutual Fund ETF Treasury Direct Website (TIPS)

Take-Away Financial Engineering Tools For Every Job Inflation Nominal vs. Real Return Taxes When do you want to pay and will you have the cash?

Applause and Questions Larry Stafford BA 543

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