What Are TIGRs, CATS, and LIONs?
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What Are TIGRs, CATS, and LIONs?
TIGRs, CATS, and LIONs—actually referred to as "felines" by some—are acronyms for securities issued by private companies but derived from US Treasury bonds. The catlike appellations are brand names belonging to the brokerage firms that first created them. For instance, Salomon Brothers invented CATS—Certificates of Accrual on Treasury Securities. Merrill Lynch introduced TIGRs (Treasury Income Growth Receipts), and Lehman Brothers created LIONs (Lehman Investment Opportunity Notes).
Things To Know
- The felines were zero coupon instruments based on Treasury bonds.
How they worked
Introduced between 1982 and 1986, the felines were zero coupon instruments based on Treasury bonds the brokerages held in escrow. They were created through a process known as coupon stripping: the brokerage would separate—strip—the bond’s interest (or coupon) from its principal, and issue bonds based on the interest separately.
Unlike regular bonds, CATS didn’t make regular payments of interest to their holders. Instead, investors bought them at a deep discount from their face value, which was the amount the investor received when the bond matured. The difference between the face value and the actual price of the zero coupon bond represented the interest earnings of the investment.
Their nine lives today
In 1986, the Treasury instituted its own STRIPS system for backing zero coupons with Treasury securities, one that made it easier for private firms to issue them and that was safer for investors. As a result, our menagerie of feline bonds was no longer being issued. However, they were still available on the secondary bond market until they matured.