This Site Requires Javascript
Burger Menu


Source: Investopedia
This Article has been Edited for Accessibility


What is 'Z-Tranche'

A special type of bond class in a sequential pay collateralized mortgage obligation. This class of bond does not receive any interest or principal payments until all other tranches have been completely paid off. In a Z-tranche, the interest that is not paid is accrued and added to the principal for future interest calculation purposes.

Explaining 'Z-Tranche'

The main purpose of the Z-tranche is to speed up the maturity of the senior tranches by disbursing payment that the Z-tranche was supposed to receive to the higher priority tranches. Investors that possess long-term liabilities or those who worry about reinvestment risk would benefit from investing in a Z-tranche bond.

Additional Resources

  1. Structured Products []
  2. Tranche Types []
  3. Why Did Holdings Of Highly-rated Securitization Tranches ... []
  4. Department Of Finance And Economics Course Number: 33:390 ... []
  5. Valuation And Analysis Of Collater Alized Mortgage Obligations* []
  6. Understanding And Measuring Risks In Agency Cmos []