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

• Record Type: Journal Article
• Authors: Vonhoff, Volker
• Is Part Of: Managerial finance. Volume 40:Issue 4(2014)
• Page Start: 326
• Page End: 354
• Publication Date: 2014-03-04
• Subjects: Financial crisis -- US treasury STRIPS -- Bond liquidity -- Market integration; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-08-2013-0217
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: – 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. Design/methodology/approach: – This paper analyzes for the first time the maturity structure of these differences for the US Treasury STRIPS market. Findings: – 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. Originality/value: – 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.