A structuring technique which involves the purchase of ordinary bonds (usually, U.S. Treasury bonds) and the repackaging thereof in a way that the receipts to interest and coupon payments are sold separate from the bonds. In this sense, a security paying regular interest can be transformed into zero-coupon receipts of varying maturities. For example, a 5-year coupon-bearing can be stripped into 10 coupon and principal instruments, each of which becomes a zero-coupon bond.
This process would be economically worthwhile if it results in the sum of the parts being larger than the whole. In contrast, if the proceeds from stripping turn out to be the same as the cost of purchasing the bonds then coupon stripping would be uneconomic.
Such instruments have been issued under a variety of names such as CATS, LIONS, TIGR, etc (these instruments have been popular as tax shelters. Generic names for them include animals and felines.
It is also known as coupon stripping.
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