Treasury Investors Growth Receipt (TIGR/TIGER)
Treasury Investors Growth Receipts, commonly known as TIGERs or TIGRs, are a type of zero-coupon security. These are U.S. government-backed bonds that have been stripped of their coupons. The [CORPUS] (principal amount) and the individual coupon payments of these bonds are sold separately at a deep discount from their face values. Investors receive the face value for the TIGRs when the bonds mature, but they do not receive periodic interest payments.
Examples
- Example 1: An investor buys a TIGER bond with a face value of $1,000 that matures in 10 years for $600. When the bond matures, the investor receives $1,000, pocketing a $400 gain as interest.
- Example 2: A pension fund manager buys $100,000 face value of TIGERs with 15 years to maturity for $55,000. At maturity, the fund receives the full $100,000, realizing $45,000 in income.
Frequently Asked Questions (FAQs)
Q1: What are the tax implications of investing in TIGERs? A: Investors in TIGERs are required to pay federal income tax on the imputed interest that accrues annually, despite not receiving periodic interest payments until maturity. This is known as “phantom income.”
Q2: Are TIGERs considered safe investments? A: TIGERs are backed by the U.S. government; therefore, they carry virtually no credit risk. However, like all fixed-income securities, they are subject to interest rate risk.
Q3: How are TIGERs different from traditional Treasury bonds? A: Unlike traditional Treasury bonds that offer periodic interest payments, TIGERs do not pay interest during the life of the bond. Instead, they are sold at a discount and pay the full face value at maturity.
Related Terms
- Zero Coupon Bond: A bond that does not pay periodic interest (coupon) payments and is issued at a significant discount to its face value. The bondholder receives the face value at maturity.
- STRIPS: Separate Trading of Registered Interest and Principal of Securities are Treasury securities that have been separated into their principal and interest components and sold as individual securities.
Online References
Suggested Books for Further Study
- “Investing in Bonds For Dummies” by Russell Wild
- “Fixed Income Securities: Tools for Today’s Markets” by Bruce Tuckman and Angel Serrat
- “Bond Markets, Analysis, and Strategies” by Frank J. Fabozzi
Fundamentals of Treasury Investors Growth Receipt: Finance Basics Quiz
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