This Day In Market History: US Treasury Begins Issuing STRIPS

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened: On Feb. 15, 1985, the federal government began allowing Treasury securities to be broken into STRIPS, or Separate Trading of Registered Interest and Principal of Securities.

Where The Market Was: The Dow Jones Industrial Average closed at 1,282.02, while the S&P 500 closed at 181.60.

What Else Was Going On In The World: Foreigner’s “I Want To Know What Love Is” topped Billboard charts, and a ticket to the No. 1 box office hit “Beverly Hills Cop,” cost just $2.75.

STRIPS Hit The Market: The creation of STRIPS allowed investors to trade on the interest or principal of a note or bond, effectively hedging against interest-rate changes.

Also called “zero-coupon bonds,” returns on the low-risk, fixed-income securities are calculated by the difference between the bond’s trading or maturity value and the STRIPS’ purchase price.

The components can be reassembled into a full security through a financial institution or government securities broker holding all principal and unmatured interest components.

The option ultimately increased liquidity in the government bond market.

Photo by Mohit Singh/Wikimedia.