What are Treasury Investment Growth Receipts (TIGR)?
Key points to remember
- Treasury Investment Growth Receipts (TIGR) were zero-coupon bonds based on US Treasury bills held by Merrill Lynch.
- TIGRs and similar securities became popular in the early 1980s because interest rates were falling sharply from the historically high levels of the late 1970s.
- The return investors received from holding TIGRs differentiated the discounted purchase price and the face value they received upon redemption.
- Merrill Lynch stopped issuing TIGRs because the U.S. government began issuing its own zero-coupon bonds, rendering TIGRs obsolete.
- Although TIGRs are no longer issued today, they are still available on the secondary bond market.
How Treasury Investment Growth Receipts (TIGR) work
In 1982, Merrill Lynch established special purpose vehicles (SPV) which would buy Treasury securities at a coupon. These big investors would “strip” coupons of the vehicle, creating two distinct titles. One bond was the equivalent of a zero-coupon certificate, and the other was a bundle of coupons that might be attractive to other investors.
The TIGRs were fixed income securities without coupons, so no interest payments were made. They were sold to a big discount at by value. This discount fluctuated depending on the time left until maturity and prevailing interest rates.
However, these obligations and Remarks could be repaid at maturity in full face value. The difference between the discounted purchase price and the face value they received upon redemption was the yield that investors have earned by holding TIGR. The discount price structure was based on the maturity of the bonds and current expectations of future interest rates.
Although no longer issued, TIGRs are still available on the secondary bond market.
Use of Treasury Investment Growth Receipts (TIGR)
Treasury Investment Growth Receipts (TIGR) and similar securities became popular in the early 1980s because interest rates fell sharply from historically high levels seen in the late 1970s. of interest fell, obligation and the value of notes increased, especially those with longer maturities and lower coupons. The strongest demand was for zero-coupon securities.
In addition to the TIGRs, other firms offered similar titles, called “cats” because of their acronyms. These included Regularization certificates on Treasury securities (CATS), issued by Salomon Brothers, and Lehman Investment Opportunity Notes (LIONS), created by Lehman Brothers.
In 1985, however, Merrill Lynch discontinued the TIGRs, and the other “cats” also became obsolete because the US Treasury began issuing its own zero-coupon bonds called Separate negotiation of registered interests and the principal of the securities (BANDS).
Interest Rates and Treasury Investment Growth Revenue (TIGR)
Demand for zero-coupon bonds and notes, such as TIGRs and other similarly structured securities, has increased in the lower interest rate environment.
For example, consider a 30-year bond with a face value of $1,000, issued at a rate of 5% paid annually. The title would have 30 coupons, each redeemable in successive years for $50 each. At an expected annual interest rate of 5%, repaying the $1,000 bond would cost approximately $232 when issued. After 30 years, the repayment of the bond itself is $1,000.
Such a bond would be worthless stripped of those annual coupons payable over the term of the bond. Its value would depend entirely on the current value (PV) of the face value of $1,000 in 30 years, with its market price based on interest rate expectations. Suppose the interest rate drops to 3% the following year. Now the bond with 29 years to maturity would be worth around $412.
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