Stripped bonds refer to those bonds that are issued by investment bankers against coupons or the maturity (corpus) portion of original bearer bonds, where the original bonds are held in trust by the investment banker. Whereas the original bonds will have coupons promising interest at each interest date (say June and December for each of the next 20 years), a given stripped bond will represent a claim against all interest payments from the entire original issue due on a particular interest date. A stripped bond is in effect a zero coupon bond manufactured by the investment banker.
Definition