Concentration guidelines are limits on the amount that can be borrowed against a security, or on the maximum dollar value of a short position. It is important to understand these limits to avoid margin or concentration calls. The amount of money you can borrow or margin is determined by the securities you hold. Some securities have higher margin lending rates than others. When you use margin to buy a security, you need to pay interest on that amount. The following guidelines apply to margin accounts from TD Direct Investing.
When a Treasury fixed-principal note or bond or a Treasury inflation-protected security TIPS is stripped through the commercial book-entry system each interest payment and the principal payment becomes a separate zero-coupon security. Each component has its own identifying number and can be held or traded separately. For example, a Treasury note with 10 years remaining to maturity consists of a single principal payment, due at maturity, and 20 interest payments, one every six months over a 10 year duration. When this note is converted to STRIPS form, each of the 20 interest payments and the principal payment becomes a separate security. STRIPS components can be reassembled into a fully constituted security in the commercial book-entry system.
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Stripped Coupons are interest payment coupons detached from government bonds. Residuals are the bonds without their interest coupons. Both are sold as individual investments known as "Strips". Strips are always sold at a discount and mature at face value. The longer the term to maturity, the deeper the discount.