Treasury Investment Growth Receipts (TIGRs): Overview

What Are Treasury Investment Growth Receipts (TIGRs)?

Treasury Investment Growth Receipts (TIGRs), issued from 1982 until 1986, were zero-coupon bonds based on U.S. Treasury bonds held by Merrill Lynch.

How Treasury Investment Growth Receipts (TIGRs) Work

In 1982, Merrill Lynch created special purpose vehicles (SPV) that would buy coupon-bearing Treasury securities. These large investors would “strip” the coupons from the vehicle, creating two separate securities. One bond was the equivalent of a zero-coupon certificate, and the other was a set of coupons that might be attractive to other investors.

TIGRs were fixed-income securities without coupons, so no interest payments were made. They were sold at a deep discount to par value. That discount fluctuated depending on how much time there was left until maturity and prevailing interest rates.

However, these bonds and notes could be redeemed at maturity at full face value. The difference between the discounted purchase price and the face value they received at redemption was the yield that investors earned for holding TIGRs. The discount pricing structure was based on bond maturity and the current expectations of future interest rates.

Though they are no longer issued, TIGRs are still available on the secondary bond market.

Use of Treasury Investment Growth Receipts (TIGRs)

Treasury Investment Growth Receipts (TIGRs) and similar securities became popular in the 1980s because interest rates were declining sharply from historically high levels seen in the late 1970s and the years immediately after. As interest rates fell, bond and note values rose, especially those with longer maturities and fewer coupons. The highest demand was for zero-coupon securities.

In addition to TIGRs, other firms offered similar securities, known as “felines” because of their acronyms. These included Certificates of Accrual on Treasury Securities (CATS), issued by Salomon Brothers, and Lehman Investment Opportunity Notes (LIONs), created by Lehman Brothers.

In 1985, however, Merrill Lynch discontinued TIGRs, and the other "felines" became obsolete as well because the U.S. Treasury began issuing its own zero-coupon bonds called Separate Trading of Registered Interest and Principal of Securities (STRIPS).

Interest Rates and Treasury Investment Growth Receipts (TIGRs)

The demand for zero-coupon bonds and notes, such as TIGRs and other similarly structured securities, grew in the climate of falling interest rates.

For example, consider a 30-year bond with a face value of $1,000, issued at a rate of 5% paid annually. The security would have 30 coupons, each redeemable in successive years for $50 each. At an annual interest rate expectation of 5%, the bond's redemption of $1,000 would cost about $232 when issued. After 30 years, the redemption of the bond itself is for $1,000.

Such a bond would be worthless, stripped of those annual coupons payable over the term of the bond. Its worth would depend entirely on the present value (PV) of the $1,000 face value in 30 years, with its market price based on prevailing interest rate expectations. Suppose the interest rate fell to 3% in the next year. Now, the bond with 29 years to maturity would be worth about $412.

The Bottom Line

TIGRs, or Treasury Investment Growth Receipts, were an innovative zero-coupon bond introduced by Merrill Lynch in the 1980s. These were essentially treasurys that had been stripped of their coupon payments, paying only face value at maturity. Although popular at the time, TIGRs were phased out after the Treasury introduced its own zero-coupon securities.