Strip Bond

A Strip Bond (also known as a Zero-Coupon Bond or STRIPS—Separate Trading of Registered Interest and Principal Securities) is a bond from which the periodic coupon payments have been stripped and sold separately from the principal repayment. Investors in strip bonds receive only a single payment at maturity (the face value), purchasing the instrument at a deep discount to reflect the time value of money. Strip bonds are highly sensitive to interest rate changes (high duration) and are primarily used by long-term investors such as pension funds to match specific future liabilities.