What are stripped RRBs?
An RRB consists of a bond with a series of coupons for each of the semi-annual interest payments. For instance, a $1,000, 30-year 4.25% RRB consists of the $1,000 principal that matures in 30 years along with 60 coupons, due every six months, each of which pays $21.25. (Remember these are “real” amounts so you have to multiply by the then current index ratio to compute the actual payment.) Some securities dealers strip the coupons from RRBs, sell them individually, as well as selling the remaining principal (called the residual.) Note that each of the stripped coupons behaves just like the residual, i.e. they each make only a single payment at a specified date in the future.
