Certificate Of Government Receipts (COUGRs)

A Certificate of Government Receipts (COUGR) is a U.S. Treasury bond that was marketed by A.G. Becker Paribas stripped of its coupon payments. COUGRs only pay an investor their face value at maturity.

A Certificate of Government Receipts represents one of several varieties of stripped U.S. Treasury securities. Normally, when an investor buys a U.S. Treasury bond, they expect to receive regular, semi-annual coupon payments at a fixed interest rate until maturity, at which point the bond pays back its principal.

An investment firm produces a stripped bond by purchasing a normal bond and then accounting separately for its principal and interest cash flow components. The institution then sells the principal part of the bond without the coupon. In other words, when an investor purchases a stripped bond they do so expecting only to receive the face value of the bond at maturity. To make the transaction attractive to investors, the institutions that sell stripped bonds do so at a discount to the face value of the bond. The investor’s return consists solely of the difference between the face value of the bond at maturity and the discounted price the investor pays at purchase.

Between roughly 1982 and 1986, various investment firms offered their own flavor of stripped Treasury bonds. BNP Paribas offered COUGRs as a synthetic investment. Other options available in the mid-1980s included Certificates of Accrual on Treasury Securities (CATS), sold by Salomon Brothers, Treasury Income Growth Receipts (TIGRS), sold by Merrill Lynch, and Lehman Investment Opportunity Notes (LIONs), sold by Lehman Brothers. The acronyms for these securities earned them the nickname of the feline family of securities.

The U.S. Treasury introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) in 1985, allowing the sale of the principal and coupon components of treasury bonds at auction. STRIPS behave exactly as other stripped bonds behave. Removing the financial institution from the stripping equation effectively killed the market for new issues of such securities from the banks. Interested investors may still be able to find COUGRs, TIGRS and CATS on secondary bond markets, however.

Stripped bonds share similarities with zero-coupon bonds. From the investor’s standpoint, both offer an issuance at an attractive discount to face value and pay face value at maturity. From the issuer’s standpoint, however, the two varieties act differently. Stripped bonds derive from an interest-bearing bond, whereas zero-coupon bonds simply offer the difference between discounted and face value in lieu of coupon payments. Coupon payments for stripped bonds still exist decoupled from the bond’s principal. In most cases, this allows bond traders to sell each coupon payment as a standalone zero-coupon bond.