Glossary · Rates & Instruments
Strip Bond
A bond from which the interest coupons have been separated and sold independently. The strip bond holder is entitled to the face value at maturity but receives no periodic interest payments.
01—What is Strip Bond?
The definition — and what it means in practice.
A strip bond is a bond whose interest coupons have been separated (“stripped”) from the principal repayment and sold as independent securities. The holder of the principal strip is entitled to receive the bond’s face value at maturity but receives no periodic interest payments. Each stripped coupon, if traded separately, represents a single future interest payment on a stated date and has its own price.
Strip bonds matter because they turn a stream of bond cashflows into simpler, date-specific payments. This makes pricing more transparent: you typically buy at a discount and the return is the difference between your purchase price and the amount received at maturity. They can help match a future cash need (such as a planned expense) on a particular date, but they also carry interest-rate risk and credit risk like other bonds.
If a Rs 1,000 bond is stripped, you might buy the “principal strip” and only receive Rs 1,000 at maturity, with no half-yearly coupons in between.
- A strip bond is created by separating coupons from the bond’s principal repayment.
- The principal strip pays face value at maturity and pays no periodic interest.
- Returns mainly come from buying at a discount and receiving face value later.
- Strip prices can be very sensitive to changes in interest rates, especially for longer maturities.
- Credit risk still depends on the original bond issuer’s ability to pay.
02—How strip bond works on the PSX
The Pakistan-specific rules, conventions, and numbers.
PSX investors are more likely to encounter strip bonds as part of the broader fixed-income concept rather than a day-to-day equity trading instrument. The key practical point is understanding that a strip behaves like a zero-coupon instrument: there are no interim coupon cashflows, only a single payment at a defined maturity date, and the price reflects discounting of that future amount.
When you invest through Pakistan’s capital market infrastructure, you typically hold securities in electronic form and transactions clear through the standard market plumbing. In practice, that means you focus on what cashflows you are entitled to and when they are due, rather than assuming all “bonds” pay regular coupons. Settlement timing (T+1) also affects when ownership is final for traded securities.
03—Common misconceptions
Where investors most often get this wrong.
A strip bond is just a normal bond with coupons paid later.
No. The coupons are separated into distinct securities. The principal strip pays only the face value at maturity and has no periodic coupon payments.
Strip bonds have no risk because the maturity amount is fixed.
The payment amount may be fixed, but the market price can move with interest rates, and credit risk remains tied to the original issuer.
Buying the principal strip means you also own the coupons.
Not necessarily. Coupons and principal can be sold independently. You only receive the cashflows of the specific strip(s) you own.
04—Using strip bond on BSL
Where this term shows up across the platform — with live data.
05—Frequently asked questions
What investors ask about strip bond on the PSX.
Frequently Asked Questions
A strip bond is a bond whose coupons have been separated and sold independently. If you hold the principal strip, you receive the face value at maturity but you do not receive periodic interest payments.
It behaves like a zero-coupon bond because it pays a single amount at maturity and no coupons. The difference is that a strip is created by separating a coupon bond into individual coupon strips and a principal strip.
The return comes from the bond being purchased at a discount to its maturity amount. Over time, the value accretes towards the amount payable at maturity, assuming the issuer remains able to pay.
Often, yes. With no interim coupons, the value depends heavily on discounting one future payment, which can make prices move more when interest rates change, especially for longer maturities.
Retail investors may come across the concept when comparing fixed-income instruments and cashflow structures. Whether a specific strip is available for trading depends on what is listed and accessible through normal brokerage channels.
06—Related terms
Keep building the picture.
A fixed-income instrument representing a loan made by an investor to a borrower, typically a government or corporation. The borrower pays periodic interest and repays the principal at maturity.
The annual interest rate payable on a bond, expressed as a percentage of its face value. A bond with a face value of PKR 1,000 and a 10% coupon rate pays PKR 100 in interest per year.
A bond that pays no periodic interest. Issued at a deep discount to its face value and redeemed at full face value at maturity. The investor's return is the difference between the two. Treasury Bills are a common example of zero-coupon instruments.
The total return an investor would earn on a bond if held until its maturity date, accounting for all coupon payments and the difference between the purchase price and face value. The most comprehensive measure of a bond's return.
Securities that pay a fixed return over a defined period, such as bonds or government securities. Generally considered lower risk than equities.
The nominal value of a share as stated in a company's charter. In Pakistan, most listed companies have a face value of PKR 10 per share, though this varies. For bonds, the face value is the amount repaid at maturity.
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