The Determinants of Treasury Bond Stripping



Several explanations of Treasury bond stripping have been proposed including investor demand, taxes, and market completion. Our findings suggest that stripping is affected by each of these factors. First, we find that higher coupon and longer maturity Treasury bonds are more heavily stripped, consistent with the Investor Demand and Tax hypotheses. Second, patterns of coupon rates on adjacent maturity issues of Treasuries have an impact on Treasury bond stripping, consistent with the Investor Demand hypothesis. Third, large gaps in the maturity spectrum of Treasury bonds induce stripping, in support of the Market Completion hypothesis. Fourth, the percent of individual bonds held as strips decreases when the yield curve is significantly inverted, consistent with the Tax hypothesis.
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Sebastian Gryglewicz                                 Agnieszka Markiewicz
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