Certificate of Accrual on Treasury Security (CATS): Definition, Redemption, and Investment Insights

Certificate of accrual on treasury security (CATS) were a unique type of bond created by Salomon Brothers in the 1980s. Unlike traditional bonds, CATS were issued at a significant discount from their face value and did not pay periodic interest. Instead, investors could redeem them for their full face value at maturity.

CATS were part of a series of innovative securities with feline acronyms introduced during this period. These included treasury income growth receipts (TIGRs) and Lehman investment opportunity notes (LIONs). TIGRs, pioneered by Merrill Lynch, were the precursor to CATS, which were designed to provide investors with a different way to earn returns on their investments.

Investors purchasing CATS paid a discounted price, typically below the face value of the bond. The difference between the purchase price and the face value represented the accrued interest that would have been earned had the bond paid periodic interest. At maturity, investors could redeem CATS for their full face value, effectively receiving the accrued interest as a return on investment.

Due to changes in the financial landscape and the introduction of alternative investment products, CATS are no longer issued by banks. However, they can still be traded in the secondary bond market. Investors looking to redeem CATS bonds should identify the issuer through the bond’s committee on uniform securities identification procedures (CUSIP) number, which uniquely identifies the bond’s issuer. This process may be complicated due to bank mergers and acquisitions over time.

No, CATS are no longer issued by banks. However, they can still be traded in the secondary bond market.

Investors looking to redeem CATS bonds should identify the issuer through the bond’s committee on uniform securities identification procedures (CUSIP) number. This may require research due to bank mergers and acquisitions over time.

CATS were designed to provide investors with an alternative way to earn returns on their investments by forgoing periodic interest payments in exchange for a discounted purchase price and redemption at face value.

CATS became obsolete due to changes in the financial landscape, including the introduction of alternative investment products and the direct issuance of zero-coupon bonds by the U.S. government through programs like the separate trading of registered interest and principal of securities (STRIPS) program.

CATS were invented by Salomon Brothers, a prominent investment bank in the 1980s. Other banks, such as Merrill Lynch, also introduced similar securities like treasury income growth receipts (TIGRs).