Strippable bonds (ie Bonos and Obligaciones del Estado which have been issued since July 1997) have two differentiating features with respect to non-strippable bonds:
They allow for the segregation of a Government Bond into the different cash-flows attached to it through maturity -coupons and principal-. For instance, a five-year Bono could be separated into six new securities, one corresponding to each of the five annual coupon payments, and the sixth one, to the principal. Each of these new securities can then be traded in isolation from the rest.
Stripping transforms an explicit yield security (Strippable Bono or Obligación) into a string of implicit yield instruments (zero-coupon bonds), with maturity and redemption value equal to the coupons and principal of the original asset. Zero-coupon bonds display special financial features which make them particularly attractive to some investors. By allowing stripping of Government Bonds, the Treasury can satisfy this demand without having to broaden the range of securities on issue. Furthermore, the reverse process to the one described above is also allowed: the original asset can be reconstituted from the zero-coupon bonds which arose from the stripping process.
Strippable Government Bonds have another attractive feature: investors subject to corporate taxation are exempt from withholding tax on the coupons of these Government Bonds, or on the return of the zero-coupon bonds (strips) arising from the stripping process.
Other characteristics of strippable Government Bonds (including issuing procedures, coupon frequency, and so on) are exactly the same as those of non-strippable ones.
The Spanish Treasury started to issue strippable securities in July 1997. Actual stripping and trading of the resulting strips began in January 1998.