Treasury Investment Growth Receipt bonds are relic of investing in the 1980s. The so-called "Tiger" bonds were the first zero coupon bonds derived from regular Treasury bonds. Since those early days of Tiger-type bond investments it has become easier and more efficient to invest in zero coupon Treasury securities.
Merrill Lynch Product
Treasury Investment Growth Receipt bonds were developed and sold by Merrill Lynch in the early 1980s. The brokerage firm registered the TIGR trademark in September 1982. Merrill took Treasury bonds held in its inventory and separated out the future interest and principal payments to be sold as zero coupon bonds -- TIGR bonds. An investor could buy a future guaranteed payment at a deep current discount. Other brokerages then started to offer similar products with names like Certificates of Accrual on Treasury Securities -- CATS -- or Treasury Receipts --TRs.
Tax Equity and Fiscal Responsibility Act
The development of TIGR bonds and other Treasury-derived zero coupon products was triggered by the passing of the 1982 Tax Equity and Fiscal Responsibility Act -- TEFRA. The Act required the U.S. Treasury to only issue securities in electronic form. Previous to TEFRA, a bearer bond Treasury bond could be manually stripped of futures interest coupons and the pieces -- coupon and principal payments -- sold separately. TEFRA also changed how investors must account for the gains made from zero coupon bonds -- paying taxes on the imputed interest earned each year.
Restricted Investment Products
The early zero coupon Treasury bonds -- TIGRs and CATS -- were not transferable from broker to broker. If an investor owned a TIGR bond, he would be paid by Merrill Lynch when the bond matured, and if he wanted to sell the bond, the sale would have to go through Merrill. Even though these bonds were backed by U.S. Treasury bonds, the disposition of a Treasury-backed, zero coupon bond could only be handled by the brokerage firm that had originated the bond.
In 1985, the U.S. Treasury instituted its own zero coupon system -- Separate Trading of Registered Interest and Principal of Securities -- STRIPS. The STRIPS system allows the separate entry into the Treasury bookkeeping system of stripped interest and principal payments. The large brokerage firms could still separate a regular Treasury bond into the different payment pieces, but now those pieces could be registered with the Treasury. The STRIPS system made transferring and trading of zero coupon Treasury bonds possible.
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