This trademark derivative instrument, short for CATS, is based on the separation of the stream of interest rate payments on government bonds from the principal. It is a zero-coupon Treasury-derivative security that is sold at a deep discount. It is called zero coupon securities because it requires no interest payments during its life. This certificate returns the full face value at maturity.

In other words, unlike regular bonds, a CATS certificate doesn’t make regular payments of interest to its holder. Instead, investors buy it at a deep discount from its face value, which is the amount the investor receives when the bond matures. The difference between the face value and the actual price of the zero-coupon bond represents the interest earnings of the investment.

CATS was invented by Salomon Brothers in 1982.