What is certificate of Accrual on government securities (cats)’
Certificates of Accrual on Treasury securities (cats) were a type of bond invented Bank Salomon brothers. Issued by private banks from 1982 – 1986, these bonds were secured by the U.S. Treasury through the creation of special purpose entities (SPV/SPE).
Cats were one of the families of securities on loan with the abbreviations cat. Other “cat” included revenues revenue growth (Tigers) and Lehman investment opportunity notes (lions). The tigers were the first family and the creation of Merrill Lynch. Salomon brothers followed suit, creating its own brand of zero-coupon bonds.
Breaking down the ‘certificate of Accrual on government securities (cats)’
Cats were sold at a substantial discount from their face value, but can be used for their full nominal value, when they are ripe. Unlike other types of bonds, cats don’t pay the interest on the coupons before maturity. The difference between the amount the investor paid for the bond and its actual face value was intended to represent the interest that would have accrued to the redemption of the bonds.
Like other securities backed by the U.S. government, cats are considered a safe investment, which does not come with any risks. They were guaranteed to buy, at their full nominal value at maturity. However, these bonds became obsolete when the U.S. government began directly by the Issuer zero-coupon bonds through a separate trade of registered interest and principal of securities (the program tape). They are no longer available for purchase, with the exception of the secondary bond market.
The ransom cat
In 1991, Salomon brothers, first the issuing Bank for cats, has covered the scandal over fraudulent acts. This scandal resulted in the appointment of Salomon brothers’ Warren Buffett in the role of Chairman of the Board of Directors and chief Executive to restore integrity and stability of the Bank. In the end, the Bank joined with a group of tourists in 1997, and later with Citibank, forming Citigroup today
Due to the accumulation and merging of banks over time, many people keep cats bonds now have a hard time figuring out how to use them. The fastest way is to recognize the bond Committee on uniform procedures securities identification (CUSIP) number. This number is a unique code identifying the Issuer of the bonds. As soon as the bond holder determined the Issuer, they should be able to determine the entity currently responsible for the repayment of the bonds.