# Strip Bonds… anyone invest in these?



## Siwash (Sep 1, 2013)

Never heard of these until came across the term yesterday on another blog… apparently they pay out over 4.35% in some cases of Provincial strip bonds… anyone have experience with these puppies? Pros/cons?

Thanks..


----------



## HaroldCrump (Jun 10, 2009)

Strip bonds remove the re-investment risk inherent in regular bonds.
For that reason, their best use is for building a bond ladder.

They are taxed just like regular bonds because of "notional interest".

Other than that, there is nothing magical about strip bonds.

Given a certain TTM and credit rating, a strip bond will not give you any additional total return.
They are subject to the same conditions as the rest of the bond market.
In some ways, they are more sensitive to interest rate changes that regular bonds.

That payout you are looking at (4.35%) is that the coupon rate or the YTM?
Also, what is the TTM?
For provincial bonds returning in the range of 4+% I am looking at nearly 20 yr. terms.


----------



## My Own Advisor (Sep 24, 2012)

Strip...bonds....
http://www.investopedia.com/terms/s/stripbond.asp

http://www.theglobeandmail.com/glob...ds-and-real-return-bonds-work/article4203787/
With regular bonds, you get interest (coupon) payments from time to time. You can reinvest that money so it will grow. But if interest rates drop, you’ll make less on your reinvested interest. With strip bonds, that danger is gone. And, you get a higher interest rate.


----------



## wendi1 (Oct 2, 2013)

I have a ladder of these in my RRSP. Just bought them at my discount broker, like any other kind of bonds.


----------



## atrp2biz (Sep 22, 2010)

For strips (zero coupons), bond duration is exactly the remaining term of the bond. Duration on regular bonds are less than the remaining term. Therefore, strips are more sensitive to interest rate movements than regular bonds of the same maturity.

Also, as HC mentioned, the coupons are implied for tax purposes. So even if you don't get an actual coupon payment, you still have to pay taxes on the accrued interest every year. Like most fixed income investments, better to have these inside a registered plan.


----------



## Siwash (Sep 1, 2013)

atrp2biz said:


> For strips (zero coupons), bond duration is exactly the remaining term of the bond. Duration on regular bonds are less than the remaining term. Therefore, strips are more sensitive to interest rate movements than regular bonds of the same maturity.
> 
> Also, as HC mentioned, the coupons are implied for tax purposes. So even if you don't get an actual coupon payment, you still have to pay taxes on the accrued interest every year. Like most fixed income investments, better to have these inside a registered plan.


Yes, I was thinking RRSPs… or TFSAs...


----------



## larry81 (Nov 22, 2010)

FYI:
http://canadiancouchpotato.com/2013/06/07/why-use-a-strip-bond-etf/
http://www.moneysense.ca/columns/a-new-etf-of-strip-bonds


----------



## OnlyMyOpinion (Sep 1, 2013)

Don't everyone pile into these, we don't want a supply-demand imbalance :apologetic:

As we've noted in past threads, we're big into strips, about ~60 individual bonds in our various accounts. They form all of our fixed income component.
Buy and forget till maturity, then purchase anew. We don't even look at the mkt value of them.

Just logged in and checked TDW fixed income and the best rate showing presently is a Loblaws strip, BBBm maturing 5/23/2022 with a YTM of 4.402%.
We stick with the higher yield investment grade corps (BBB or greater) rather than prov or fed strips. Because of the diversity provided by owning multiple strips, having a single issuer 'go bad' is not a concern. This by the way has never happened in the +15yrs we've been buying them.

We do hold some in our taxable trading account. We have an excel spreadsheet we just drop the purchase into and have the annual 'deemed' interest calculated through the life of the bond, added up with the other strips to tell us how much to report to the feds on Schedule 4 each year.


----------



## Siwash (Sep 1, 2013)

OnlyMyOpinion said:


> Don't everyone pile into these, we don't want a supply-demand imbalance :apologetic:
> 
> As we've noted in past threads, we're big into strips, about ~60 individual bonds in our various accounts. They form all of our fixed income component.
> Buy and forget till maturity, then purchase anew. We don't even look at the mkt value of them.
> ...


intriguing… i might have to research some more!


----------

