Certificate Of Accrual On Treasury Security (CATS) Explained: Prices & History (1982-1986)
Explore the full guide to Certificate Of Accrual On Treasury Security (CATS), a unique zero-coupon bond issued between 1982 and 1986, backed by the U.S. Treasury and its impact on modern bond markets.
Gordon Scott brings over 20 years of experience as an investor and technical analyst, holding the Chartered Market Technician (CMT) designation.
What Are Certificates of Accrual on Treasury Securities (CATS)?
Certificates of Accrual on Treasury Securities, commonly known as CATS, were innovative zero-coupon bonds introduced by Salomon Brothers between 1982 and 1986. These privately issued bonds were uniquely backed by the U.S. Treasury via special purpose vehicles (SPVs), ensuring government-level security.
CATS belonged to a family of creatively named securities with feline-inspired acronyms. This group also included Treasury Income Growth Receipts (TIGRs) developed by Merrill Lynch and Lehman Investment Opportunity Notes (LIONs). Following Merrill Lynch’s pioneering TIGRs, Salomon Brothers launched CATS as their distinctive zero-coupon bond offering.
How Do CATS Work?
CATS were sold at a substantial discount to their face value and did not pay periodic interest. Instead, investors profited from the difference between the discounted purchase price and the full face value received at maturity. This structure represented accrued interest accumulating over the bond’s term.
Backed by the full faith of the U.S. government, CATS were considered low-risk investments, guaranteeing redemption at face value upon maturity. However, their issuance ceased after the U.S. Treasury introduced the STRIPS program, which allowed zero-coupon bonds to be issued directly, making CATS obsolete. Today, these bonds are only accessible via secondary markets.
Redeeming CATS Bonds Today
Salomon Brothers, the original issuer of CATS, faced a major scandal in 1991 involving fraudulent activities. This crisis led to Warren Buffett’s appointment as chairman and CEO to restore the bank’s reputation. Subsequently, Salomon Brothers merged with Travelers Group in 1997 and later became part of Citigroup.
Due to multiple mergers and corporate changes, many CATS bondholders find it challenging to redeem their bonds. The quickest way to identify the responsible issuer is by locating the bond’s Committee on Uniform Securities Identification Procedures (CUSIP) number. This unique identifier helps bondholders trace the current entity managing the bond’s repayment obligations.
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