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 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 Ztranche 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 zerocoupon 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.

Collateralized Mortgage Obligation ...
A type of mortgagebacked security in which principal repayments ... 
Accrual Rate
The rate of interest that is added to the principal of a financial ... 
ZTranche
A special type of bond class in a sequential pay collateralized ... 
Accumulation Bond
A bond issued at an original issue discount (OID). This means ... 
Duration
A measure of the sensitivity of the price (the value of principal) ... 
ZeroCoupon Bond
A debt security that doesn't pay interest (a coupon) but is traded ...

What is the relationship between the hurdle rate (MARR) and the Internal Rate of ...
In capital budgeting, projects are often evaluated by comparing the internal rate of return, or IRR, on a project to the ... Read Full Answer >> 
What is the rationale behind the effective interest rate?
There are several different effective interest rates. In accounting, the effective interest method examines the relationship ... Read Full Answer >> 
What is the difference between compounding interest and simple interest?
Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >> 
What are the primary differences between a closed end investment and an open end ...
The primary differences between closedend funds and openend funds lie in how they are structured and how they are bought ... Read Full Answer >> 
What is the relationship between modified duration and interest rates?
Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >> 
What do mortgage lenders use the securitization food chain?
The phrase "securitization food chain" was made popular by director Chris Ferguson in "Inside Job," a film about the 20072 ... Read Full Answer >>

Mutual Funds & ETFs
4 Steps To Building A Profitable Portfolio
This is a stepbystep approach to determining, achieving and maintaining optimal asset allocation. 
Investing
The Advantages Of Bonds
Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment. 
Investing Basics
How To Create A Modern FixedIncome Portfolio
Exposure to different asset classes is required to generate income, reduce risk and beat inflation. Find out how bonds can help. 
Bonds & Fixed Income
How Bond Market Pricing Works
Learn the basic rules that govern how bond prices are determined. 
Options & Futures
Callable Bonds: Leading A Double Life
Find out more about these dangerous and exciting cousins to regular bonds. 
Bonds & Fixed Income
Boost Bond Returns With Laddering
If you want a diversified portfolio and steady cash flow, check out this fixedincome strategy. 
Retirement
Bond Basics Tutorial
Investing in bonds  What are they, and do they belong in your portfolio? 
Bonds & Fixed Income
Advanced Bond Concepts
Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration. 
Investing Basics
What's the Primary Market?
The primary markets are where investors can get first crack at a new security issuance. 
Investing Basics
Treasury InflationProtected Securities (TIPS)
Treasury inflationprotected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.