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Z-Tranche

Source: Investopedia
This Article has been Edited for Accessibility

Z-Tranche

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 [www3.nd.edu]
  2. Tranche Types [pages.stern.nyu.edu]
  3. Why Did Holdings Of Highly-rated Securitization Tranches ... [babson.edu]
  4. Department Of Finance And Economics Course Number: 33:390 ... [syllabi.business.rutgers.edu]
  5. Valuation And Analysis Of Collater Alized Mortgage Obligations* [krannert.purdue.edu]
  6. Understanding And Measuring Risks In Agency Cmos [citeseerx.ist.psu.edu]