Treasuryreceipt

Key Takeaways

• A treasury receipt is a type of zero-coupon bond purchased at a discount, offering full face value at maturity without periodic interest payments.
• Created by brokerage firms, treasury receipts are backed by underlying U.S. government securities but are not issued by the U.S. Treasury.
• The market value of treasury receipts can fluctuate significantly due to changes in interest rates, offering potential benefits and risks.
• Since 1986, the U.S. Treasury Department also issues zero-coupon bonds, overshadowing previously popular treasury receipts.

What Is a Treasury Receipt?

Treasury receipts are zero-coupon bonds sold by brokerage firms, bought at a discount, and matured at full face value. Unlike traditional bonds, treasury receipts do not pay regular interest installments.

Issued by brokerage firms, treasury receipts are backed by U.S. Treasury securities, ensuring a level of security for investors. We'll delve into what treasury receipts are, how they work, and their role in investment strategies.

How Treasury Receipts Function

Any bond is an investment in debt. Bonds are issued by companies or governments in order to raise money for short-term or long-term projects. In return, the investor is paid a profit, usually in the form of regular interest payments for the life of the bond.

For the individual investor, the best-known type of bond pays interest at regular intervals until the bond reaches its maturity date and the principal investment is returned. Such bonds are a common investment for retirees seeking a supplement to their regular income.

Treasury receipts are a bit different. Brokerages buy large blocks of U.S. Treasury bonds and then split them into their separate components, the principal payments and the interest payments. The brokerages sell the principal payments at a discount to investors, who reap the full value at the maturity date. They sell the interest payments to other investors.

In effect, treasury receipts are no longer U.S. Treasury bonds but they are backed by U.S. Treasury bonds.

Important Points About Treasury Receipts

In the bond market, treasury receipts are known as zero-coupon bonds. The prices of zero-coupon bonds, in general, fluctuate wildly as changes in overall interest rates make them more or less desirable to traders.

Typically, they are sold at a deep discount because they mature at "par" or face value.

Important

The U.S. Treasury Department has been issuing zero-coupon bonds since 1986.

A variety of Treasury receipts have been issued, including Separate Trading of Registered Interest and Principal Securities (STRIPS), Certificates of Accrual on Treasury Securities (CATS), Treasury Investment Growth Receipts (TIGRs), and Certificate of Government Receipts (COUGRs).

In 1986, the Treasury Department began issuing its own zero-coupon bonds, making most of these fancy acronyms obsolete.