Stripping STRIPs Trading Activity

Michael J. Fleming and Or Shachar

In March 2020, the Financial Industry Regulatory Authority (FINRA) began reporting aggregate trading volume for securities issued by the U.S. Treasury Department. The public data do not, however, include information about the trading activity of Separate Trading of Registered Interest and Principal of Securities (STRIPS). STRIPS are created from existing Treasury securities and offer risk management benefits, yield curve insights, and investment opportunities for a diverse range of market participants. In this post, we provide the first detailed analysis of STRIPS trading activity using FINRA’s Trade Reporting and Compliance Engine (TRACE) transactions data.

What are STRIPS?

STRIPS are zero-coupon securities created from the separation of cash flows on a Treasury security into the underlying coupon and principal components. The twenty semi-annual coupon payments on a newly issued 10-year note, for example, can be stripped (or separated) from the principal payment and one another, resulting in twenty-one individual securities. Each security receives its own CUSIP number and can be traded and registered separately, while remaining a direct obligation of the U.S. government. Securities created from the coupon payments are commonly called coupon STRIPS and those created from principal payments, principal STRIPS.

As STRIPS have known cash values at a wide range of specific future dates, they enable investors to closely match their liabilities with Treasury cash flows and are thus popular with liability-driven investors, such as pension funds and insurance companies. The flexibility to customize investments, and the high duration of long maturity STRIPS, also make them popular with speculators. In addition, the simple structure of STRIPS facilitates an effective reading of the yield curve, as discussed in “Using Treasury STRIPS to Measure the Yield Curve.”

Note that components of a stripped Treasury security can be reassembled into their fully constituted form. That is, just as a holder of a Treasury security can request that it be stripped into its individual cash flow components, it can also gather the principal component and remaining interest components of a given issued security and request that they be reconstituted. Reconstitution may occur because demand for a reconstituted security increases its price above that of its stripped components.

Which Securities are Stripped?

As of the end of June 2025, $560 billion in U.S. Treasury securities were held in stripped form, accounting for 2.5 percent of the $22.2 trillion in marketable notes, bonds, and Treasury Inflation-Protected Securities (TIPS) outstanding. Note that bills and floating rate notes are not eligible for stripping. Most stripped securities are long maturity bonds, as shown in the chart below, reflecting demand from liability-driven investors seeking long-duration instruments. In fact, bonds account for 98.1 percent of Treasuries held in stripped form, notes 1.9 percent, and (TIPS) 0.002 percent.

The flow of securities stripped by sector, shown in the next chart, is highly correlated with the stock of securities that are stripped, shown above. The chart also illustrates that there is substantial reconstitution of securities from STRIPS, so that on average, $1,827 million in Treasuries were stripped each day from July 2024 to June 2025 and $1,567 million reconstituted.

The prevalence of stripped securities by sector masks considerable variation across securities. As of the end of June 2025, the most recently issued bond in the 25-30 year sector was only 7 percent stripped, the least of any bond in that sector. In contrast, the bond maturing on May 15, 2053 was 36 percent stripped, the most of any Treasury security. In the 15-20 year sector, six bonds were not stripped at all, all of which were originally issued as 20-year bonds.

How Much Do STRIPS Trade?

Daily trading volume of STRIPS averaged $5.6 billion from July 2024 to June 2025, with coupon STRIPS accounting for 32 percent ($1,784 million) and principal STRIPS 68 percent ($3,856 million). For comparison, Treasury notes, bonds, and TIPS traded $739 billion per day on average from July 2024 to June 2025. Consistent with stripping activity, trading volume of principal STRIPS is concentrated in longer maturities, as shown in the chart below. By comparison, the volume of coupon STRIPS is more evenly distributed. The more even distribution of trading activity for coupon STRIPS reflects the more even distribution of coupon STRIPS outstanding, as the stripping process creates semi-annual coupon STRIPS from the present to the stripped security’s final maturity, but principal STRIPS with only the stripped security’s final maturity.

Breaking down trading activity by venue: about 73 percent of daily volume of coupon STRIPS trade in the dealer-to-client (DTC) market (averaging $1,309 million), 19 percent in the dealer-to-dealer (DTD; $338 million), and 8 percent through interdealer broker (IDBs; $137 million). The volumes of principal STRIPS are even more concentrated in the DTC segment with 88 percent of daily volume (averaging $3,396 million). The high share of DTC activity likely reflects the value that end-users such as pension funds and insurance companies ascribe to these single-payment securities.

The coupon vs. principal STRIPS activity gap is also apparent in average trade size, as shown in the table below. Coupon STRIPS trade with an average size of about $850 thousand, whereas principal STRIPS trade with an average trade size of about $7 million. Trade sizes are also larger in the DTC market, and especially for principal STRIPS.

Longer maturity STRIPS also trade with much larger trade sizes and this is especially true for principal STRIPS, as shown in the next chart. Trade sizes in the 25-30 year sector are thus about 4 times larger than those in the 10-15 year sector for principal STRIPS ($12.3 million vs. $2.8 million), but only about 2.5 times as large for coupon STRIPS ($2.5 million vs. $1.0 million).

Lastly, we explore trading frequency in the chart below. Interestingly, the 0-5 year maturity bucket is most frequently traded, with roughly the same number of DTC and DTD trades each trading day. As the securities’ maturities extend, the average daily number of trades generally decreases for coupon STRIPS. However, for principal STRIPS the average daily number of trades first decreases but then increases as securities’ maturities extend beyond 10-15 years.

Summing Up

Our preliminary analysis shows that trading activity concentrates in long-maturity principal STRIPS, aligning with the preferences of liability-driven investors such as pension funds and insurance companies for long-duration instruments. Principal STRIPS also tend to trade with higher prices than coupon STRIPS of the same maturity (as shown in “Using Treasury STRIPS to Measure the Yield Curve,” for example). An interesting area for future analysis is the extent to which the higher trading volume of principal STRIPS is associated with higher liquidity and whether liquidity differences in the STRIPS market can help explain the pricing differences.

Michael J. Fleming is head of Capital Markets in the Federal Reserve Bank of New York’s Research and Statistics Group. 

Or Shachar is a financial research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.

 
@article{FlemingShachar2026,
    author={Fleming, Michael J. and Shachar, Or},
    title={Stripping STRIPs Trading Activity},
    journal={Liberty Street Economics},
    note={Liberty Street Economics Blog},
    number={August 10},
    year={2026},
    url={https://doi.org/10.59576/lse.20260810}
}

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