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Zero Coupon Bonds
Zero coupon bonds are backed by the full faith and credit of the United States government. These securities, known as STRIPS, are issued directly by the Treasury. Zero coupon, Treasury-backed bonds, such as CATS and TIGRs are not issued by the Treasury, but they are 100 percent collateralized by U.S. Treasury bonds. These bonds are offered at a deep discount and mature at face value. They compound semiannually at the corresponding yield the investor locks in at the time of purchase.
To provide investors who don't need income now the opportunity to let their money grow, government guaranteed, until a specific future date.
Zero coupon treasury bonds can be used for any situation where the goal is to accumulate a specific amount of money by a certain future date.
- Credit Safety - Zero coupon treasury bonds are government guaranteed as to the payment of face amount at maturity.
- Tax Advantage - Zero coupon treasury bonds are state and local tax-free.
- Small Initial Cash Investment - A small investment today can grow to a large investment over time.
- Liquidity - Zero coupon bonds can be sold on any business day at their current market value. You may receive the same, more, or less than originally invested.
- Market Value Fluctuations - As interest rates change, the price of zero coupon treasury bonds change. These price fluctuations may be greater than those on interest-paying treasuries of the same maturity.
- Phantom Income - If bonds are not held in a tax-advantaged account, investors will be required to pay federal income tax on the accredited value each year, although they have not received any payout of that income.
For more information on zero coupon bonds, please contact your local financial advisor.