The AI (ChatGPT) Bond Investing Handbook: Treasury STRIPS

Here is the response from ChatGPT for the prompt treasury STRIPS entered on February 19, 2023.

Treasury STRIPS, also known as Treasury Separate Trading of Registered Interest and Principal of Securities, are a type of U.S. Treasury security that is created by separating the interest payments and principal payments of a Treasury bond or note, and then selling them as individual securities. Essentially, Treasury STRIPS are zero-coupon securities, which means that they do not pay periodic interest payments, but instead are sold at a discount to their face value and then mature at par.

The creation of Treasury STRIPS is a process called "stripping," in which the interest payments and principal payments are separated and then sold as individual securities. This process is conducted by financial institutions known as primary dealers, who then sell the STRIPS to investors in the secondary market.

Treasury STRIPS are considered to be one of the safest types of investments available, as they are backed by the full faith and credit of the U.S. government. They are often used by investors as a way to hedge against inflation or as a way to invest in the U.S. Treasury market without having to worry about reinvestment risk.

However, like other types of U.S. Treasury securities, Treasury STRIPS are subject to interest rate risk, which means that their market value can fluctuate with changes in interest rates. Additionally, because they do not pay periodic interest payments, they are typically purchased by investors who are willing to hold the security until maturity.

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