Course 205: TIGRs, CATS, and LIONs
Evolution of TIGRs, CATS, and LIONs
In this course
1 Introduction
2 What Are TIGRs, CATS, and LIONs?
3 Evolution of TIGRs, CATS, and LIONs
4 Comforts of TIGRs, CATS, and LIONs
5 TIGRs, CATS, and LIONs Are a Twist on a Popular Kind of Bond

The investment firms that designed the "felines" in the mid-'80s did so by purchasing U.S. Treasury bonds and stripping the interest from the principal. The interest payments were then divided into units, which became the basis of zero-coupon bonds.

For example, a firm might purchase a 20-year Treasury bond, which it would place in escrow. It would then strip the interest from the principal and divide it up into 40 units based on the semi-annual interest payments of the Treasury bond.

It could then issue 40 zero-coupon bonds, each with a face value that equaled the interest payment on which it was based. The zeroes would be sold at deep discount: A 20-year bond that paid $1,000 at maturity might cost about $300.

These Treasury-backed zeros offered investors a financial instrument that had abundant supply, no default risk and, best of all, no chance of being called--paid off before maturity, reducing the investor's return.

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