Accrual Bond

Filed Under » , , , ,
Dictionary Says

Definition of 'Accrual Bond'

A bond that does not pay periodic interest payments. Instead, interest is added to the principal balance of the bond and is either paid at maturity or, at some point, the bond begins to pay both principal and interest based on the accrued principal and interest to that point. 
Investopedia Says

Investopedia explains 'Accrual Bond'

When the bond begins to pay both principal and interest based on the accrued principal and interest at that point, this is known as a Z tranche and is common in collateralized mortgage obligations (CMOs). In a CMO that includes a Z tranche, the interest payments that otherwise would be paid to the Z-tranche holder are used to pay down the principal of another tranche. After that tranche is paid off, the Z tranche begins to pay down based on the original principal of the tranche plus the accrued interest.

Similar to a zero-coupon bond, an accrual bond or Z tranche has limited or no reinvestment risk. However, accrual bonds, by definition, have a longer duration than bonds with the same maturity that make regular interest or principal and interest payments. As such, accrual bonds are subject to greater interest rate risk than bonds that make periodic payments over their entire terms.

Articles Of Interest

  1.

    4 Steps To Building A Profitable Portfolio

    This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation.

  2. The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.

  3. How To Create A Modern Fixed-Income Portfolio

    Exposure to different asset classes is required to generate income, reduce risk and beat inflation. Find out how bonds can help.

  4. How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.

  5. Callable Bonds: Leading A Double Life

    Find out more about these dangerous and exciting cousins to regular bonds.

  6. Boost Bond Returns With Laddering

    If you want a diversified portfolio and steady cash flow, check out this fixed-income strategy.

  7. Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.

  8. Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?

  9. Should You Offer Alternative Investments?

    Find out what problems arise for financial representatives when they start to diversify their client offerings.

  10. Perpetual Bonds: An Overview

    A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...

  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center