Certificate Of Government Receipts (COUGRs)
A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that was marketed by A.G. Becker Paribas stripped of its coupon payments. Normally, when an investor buys a U.S. Treasury bond, they expect to receive regular, semi-annual coupon payments at a fixed interest rate until maturity, at which point the bond pays back its principal. Stripped bonds derive from an interest-bearing bond, whereas zero-coupon bonds simply offer the difference between discounted and face value in lieu of coupon payments. In other words, when an investor purchases a stripped bond they do so expecting only to receive the face value of the bond at maturity. A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that was marketed by A.G. Becker Paribas stripped of its coupon payments.
What Is a Certificate Of Government Receipts (COUGRs)?
A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that was marketed by A.G. Becker Paribas stripped of its coupon payments. COUGRs only pay an investor their face value at maturity.
Understanding Certificate Of Government Receipts (COUGRs)
A Certificate of Government Receipts represents one of several varieties of stripped U.S. Treasury securities. Normally, when an investor buys a U.S. Treasury bond, they expect to receive regular, semi-annual coupon payments at a fixed interest rate until maturity, at which point the bond pays back its principal.
An investment firm produces a stripped bond by purchasing a normal bond and then accounting separately for its principal and interest cash flow components. The institution then sells the principal part of the bond without the coupon. In other words, when an investor purchases a stripped bond they do so expecting only to receive the face value of the bond at maturity. To make the transaction attractive to investors, the institutions that sell stripped bonds do so at a discount to the face value of the bond. The investor’s return consists solely of the difference between the face value of the bond at maturity and the discounted price the investor pays at purchase.
The Family of Stripped Bonds
Between roughly 1982 and 1986, various investment firms offered their own flavor of stripped Treasury bonds. BNP Paribas offered COUGRs as a synthetic investment. Other options available in the mid-1980s included Certificates of Accrual on Treasury Securities (CATS), sold by Salomon Brothers, Treasury Income Growth Receipts (TIGRS), sold by Merrill Lynch, and Lehman Investment Opportunity Notes (LIONs), sold by Lehman Brothers. The acronyms for these securities earned them the nickname of the feline family of securities.
The U.S. Treasury introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) in 1985, allowing the sale of the principal and coupon components of treasury bonds at auction. STRIPS behave exactly as other stripped bonds behave. Removing the financial institution from the stripping equation effectively killed the market for new issues of such securities from the banks. Interested investors may still be able to find COUGRs, TIGRS and CATS on secondary bond markets, however.
Stripped Bonds Compared to Zero-Coupon Bonds
Stripped bonds share similarities with zero-coupon bonds. From the investor’s standpoint, both offer an issuance at an attractive discount to face value and pay face value at maturity. From the issuer’s standpoint, however, the two varieties act differently. Stripped bonds derive from an interest-bearing bond, whereas zero-coupon bonds simply offer the difference between discounted and face value in lieu of coupon payments. Coupon payments for stripped bonds still exist decoupled from the bond’s principal. In most cases, this allows bond traders to sell each coupon payment as a standalone zero-coupon bond.
Related terms:
Bond Valuation
Bond valuation is a technique for determining the theoretical fair value of a particular bond. read more
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Cash Flow
Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. read more
Certificate Of Accrual On Treasury Security (CATS)
Certificate Of Accrual On Treasury Security (CATS) was a zero-coupon bond, privately issued, but backed by the U.S. Treasury, between 1982 and 1986. read more
Coupon
A coupon is the annual interest rate paid on a bond, expressed as a percentage of the face value, also referred to as the "coupon rate." read more
Coupon Equivalent Rate (CER)
The coupon equivalent rate (CER) is an alternative calculation of coupon rate used to compare zero-coupon and coupon fixed-income securities. read more
Discount
In finance, a discount refers to a situation when a bond is trading for lower than its par or face value. These include pure discount instruments. read more
Face Value
Face value is the nominal value or dollar value of a security stated by the issuer, also known as "par value" or simply "par." read more
Lehman Investment Opportunity Note (LION)
A Lehman Investment Opportunity Note (LION) was a type of zero-coupon Treasury bond issued by the U.S. government through Lehman Brothers. read more