Yield differences between coupon and principal STRIPS. Issue 4 (2014)

• Record Type: Journal Article
• Authors: Volker Vonhoff
• Is Part Of: Managerial finance. Volume 40:Issue 4(2014)
• Page Start: 326
• Page End: 354
• Publication Date: 2014
• Subjects: Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-08-2013-0217
• Languages: English
• ISSNs: 0307-4358

Abstract

<abstract> <title> <x xml:space="preserve"> Abstract </x> </title> <p> <bold>Purpose</bold> – Coupon and principal Separate Trading of Registered Interest and Principal Securities (STRIPS) maturing at the same date often trade at different yields. The paper aims to discuss this issue. <bold>Design/methodology/approach</bold> – This paper analyzes for the first time the maturity structure of these differences for the US Treasury STRIPS market. <bold>Findings</bold> – The paper surprisingly finds that short‐term coupon STRIPS persistently trade at lower yields whereas long‐term coupon STRIPS trade at higher yields compared to matched‐maturity principal STRIPS. <bold>Originality/value</bold> – An integrated analysis of Treasury STRIPS and the underlying notes market allows us to isolate two determinants: first, properties of the underlying notes that spill over to principal STRIPS, and second, the liquidity of coupon STRIPS measured by stripping activity and stripping volume.</p> <ack> <title> <x xml:space="preserve"> Acknowledgements </x> </title> <p> <bold>JEL classification</bold> – E43, G01, G12</p> </ack> </abstract>