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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: STRIPs and TINTs Date: 10/2/2012 4:16 PM
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Paul,

I’d suggest that a re-write of the first sentence of the second paragraph is needed. Rather than asserting without proof that “STRIPS are well suited…”, the honest statement is that “they might be suited to funding specific needs,” and that would depend on a whole host of factors, not the least of which is that buying STRIPS in today’s Zero Interest Rate Environment is more likely to cause losses and tax griefs than not. Take a look at E*Trade’s offering-list for STRIPS below. Why would anyone want to buy these things at their present prices? To get a 3% return from STRIPS, one would have to go out 40 years on the yield-curve. But even a plain checking account will offer 3% on the first $25,000 of deposits. (I’ve got one locally, and I know others are available nationally.) A lot can happen in 40 years, not the least of which will be rising interest-rates that would make buying STRIPS now the ultimate in market mis-timing.

Also, there is the problem of taxes. Treasuries (of any type) are exempt from state taxes only when they are held in taxable accounts, as you say. However, as you also point out, then the implied-interest becomes immediately taxable. But that is going to be a constant aggravation to their already tax-burdened owners, and it amounts to robbing Peter to pay Paul. Yes, a tiny bit of interest is credited to the account, but a nearly offsetting debit is deducted from the owner’s other accounts in the form of a check written to the IRS. But if the STRIPS are held in tax-sheltered accounts (which, I agree, is the best place for them *if* one intends long holding-periods, and it’s where I hold my zeros, be they Treasuries Agencies, Munis, or Corporates), then the tax-advantage is lost. However, a whole bunch of paperwork and tax-grief is avoided each year, and that's an implied cost that zero owners might be willing to pay.

There is one thing for which STRIPS can be well suited that you don’t mention, and that is that they can be excellent trading vehicles. The instrument is liquid, so it’s easy to get in and out of, and serious money can be made if they are bought before interest-rates drop and then sold. Benham (now Am Cent? ) used of offer Treasuries zeros though funds, and in '95 (?) the longest-dated ones returned something in the neighborhood of 55%. That's serious money. Lesser money, but still decent, can be obtained when conditions are right using the 2-year and 5-year notes. I've bought them though Treasury Direct, then later transferred them to a brokerage account where they were sold, and made 13%-15%.

Charlie
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Due Price YTM
11/15/12 99.994 0.05%
11/15/12 99.982 0.15%
11/15/12 99.997 0.03%
11/30/12 99.976 0.15%
02/15/13 99.962 0.10%
02/15/13 99.987 0.04%
05/15/13 99.906 0.15%
08/15/13 99.876 0.14%
11/15/13 99.792 0.19%
11/15/13 99.819 0.16%
02/15/14 99.733 0.20%
02/15/14 99.740 0.19%
05/15/14 99.652 0.22%
05/15/14 99.692 0.19%
08/15/14 99.576 0.23%
08/15/14 99.606 0.21%
11/15/14 99.481 0.25%
11/15/14 99.499 0.24%
02/15/15 99.368 0.27%
02/15/15 99.382 0.26%
05/15/15 99.268 0.28%
05/15/15 99.259 0.28%
08/15/15 99.144 0.30%
08/15/15 99.215 0.28%
08/15/15 99.129 0.31%
11/15/15 98.962 0.34%
11/15/15 98.947 0.34%
02/15/16 98.821 0.35%
02/15/16 98.780 0.36%
05/15/16 98.585 0.39%
05/15/16 98.583 0.39%
08/15/16 98.319 0.44%
08/15/16 98.321 0.44%
11/15/16 98.053 0.48%
11/15/16 97.969 0.50%
02/15/17 97.788 0.51%
02/15/17 97.668 0.54%
05/15/17 97.494 0.55%
05/15/17 97.364 0.58%
08/15/17 97.143 0.60%
08/15/17 96.952 0.64%
11/15/17 96.808 0.64%
11/15/17 96.566 0.68%
02/15/18 96.402 0.68%
02/15/18 96.108 0.74%
05/15/18 95.925 0.74%
05/15/18 95.679 0.79%
08/15/18 95.698 0.75%
08/15/18 95.243 0.83%
11/15/18 95.028 0.84%
11/15/18 95.147 0.81%
11/15/18 94.750 0.88%
02/15/19 94.554 0.88%
02/15/19 94.273 0.93%
05/15/19 93.736 0.98%
08/15/19 93.459 0.99%
08/15/19 93.169 1.03%
11/15/19 92.490 1.10%
02/15/20 92.125 1.12%
02/15/20 91.785 1.17%
05/15/20 91.425 1.18%
05/15/20 91.083 1.23%
08/15/20 90.733 1.24%
08/15/20 90.492 1.27%
11/15/20 89.944 1.31%
02/15/21 89.439 1.34%
02/15/21 89.075 1.39%
05/15/21 88.612 1.41%
05/15/21 88.276 1.45%
08/15/21 87.961 1.45%
08/15/21 87.574 1.50%
11/15/21 87.247 1.50%
11/15/21 86.869 1.55%
02/15/22 86.065 1.61%
05/15/22 85.330 1.66%
08/15/22 85.103 1.64%
08/15/22 84.506 1.71%
11/15/22 84.298 1.70%
11/15/22 83.700 1.77%
02/15/23 83.453 1.75%
02/15/23 82.808 1.83%
05/15/23 82.060 1.87%
08/15/23 81.921 1.84%
08/15/23 81.254 1.92%
11/15/23 80.476 1.96%
02/15/24 79.679 2.01%
05/15/24 78.904 2.05%
08/15/24 78.103 2.09%
11/15/24 78.059 2.05%
11/15/24 77.335 2.13%
02/15/25 77.299 2.09%
02/15/25 76.564 2.17%
05/15/25 75.801 2.21%
08/15/25 75.819 2.16%
08/15/25 75.051 2.24%
11/15/25 74.310 2.28%
02/15/26 74.347 2.23%
02/15/26 73.565 2.31%
05/15/26 72.883 2.34%
08/15/26 72.974 2.29%
08/15/26 72.164 2.37%
11/15/26 72.253 2.32%
11/15/26 71.456 2.39%
02/15/27 71.502 2.35%
02/15/27 70.720 2.43%
05/15/27 70.102 2.45%
08/15/27 70.196 2.39%
08/15/27 69.453 2.47%
11/15/27 69.530 2.42%
11/15/27 68.792 2.49%
02/15/28 68.124 2.51%
05/15/28 67.549 2.53%
08/15/28 67.781 2.47%
08/15/28 66.905 2.55%
11/15/28 67.110 2.49%
11/15/28 66.209 2.57%
02/15/29 66.551 2.50%
02/15/29 65.675 2.59%
05/15/29 65.110 2.60%
08/15/29 65.488 2.53%
08/15/29 64.514 2.62%
11/15/29 63.972 2.63%
02/15/30 63.387 2.64%
05/15/30 64.005 2.55%
05/15/30 62.857 2.65%
08/15/30 62.285 2.67%
11/15/30 61.763 2.68%
02/15/31 62.539 2.57%
02/15/31 61.254 2.69%
05/15/31 60.713 2.70%
08/15/31 60.173 2.71%
11/15/31 59.651 2.72%
02/15/32 59.091 2.73%
05/15/32 58.572 2.75%
08/15/32 58.060 2.76%
02/15/33 57.007 2.78%
05/15/33 56.537 2.79%
08/15/33 55.966 2.80%
11/15/33 55.491 2.81%
02/15/34 54.970 2.82%
05/15/34 54.542 2.82%
08/15/34 53.969 2.84%
11/15/34 53.526 2.85%
02/15/35 52.956 2.86%
05/15/35 52.616 2.86%
08/15/35 52.091 2.87%
11/15/35 51.644 2.88%
02/15/36 52.327 2.79%
02/15/36 51.294 2.88%
05/15/36 50.864 2.88%
08/15/36 50.395 2.89%
11/15/36 49.933 2.90%
02/15/37 50.446 2.83%
02/15/37 49.462 2.91%
05/15/37 50.008 2.83%
05/15/37 49.064 2.91%
08/15/37 48.592 2.92%
11/15/37 48.175 2.93%
02/15/38 48.591 2.87%
02/15/38 47.730 2.94%
05/15/38 48.198 2.87%
05/15/38 47.360 2.94%
08/15/38 46.926 2.95%
11/15/38 46.530 2.95%
02/15/39 46.807 2.90%
02/15/39 46.094 2.96%
05/15/39 46.349 2.91%
05/15/39 45.685 2.97%
08/15/39 45.955 2.91%
08/15/39 45.350 2.97%
11/15/39 45.629 2.91%
11/15/39 44.964 2.97%
02/15/40 45.276 2.92%
02/15/40 44.609 2.97%
05/15/40 44.785 2.93%
05/15/40 44.191 2.98%
08/15/40 44.277 2.95%
08/15/40 43.833 2.98%
11/15/40 43.882 2.95%
11/15/40 43.483 2.98%
02/15/41 43.513 2.96%
02/15/41 43.174 2.98%
05/15/41 43.116 2.96%
05/15/41 42.910 2.98%
08/15/41 42.600 2.98%
08/15/41 42.533 2.98%
11/15/41 42.359 2.97%
02/15/42 41.793 2.99%
02/15/42 41.842 2.99%
05/15/42 41.460 2.99%
05/15/42 41.363 3.00%
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