The final tranche in a series of mortgage-backed securities that is the last one to receive payment. Used in some collateralized mortgage obligations (CMO), Z-bonds pay no coupon payments while principal is being paid on earlier bonds. Interest that would have been paid on Z-bonds is used instead to pay down principal more rapidly on the earlier series of bonds.


Interest payable on a Z-bond is added to the principal balance and becomes payable once claims on all prior bond classes have been satisfied. A Z-bond is similar to a zero-coupon bond, since it accrues interest rather than paying it out. Therefore, the final tranche is considered the most risky for the CMO class structures.

  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Collateralized Debt Obligation ...

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  5. Pass-Through Rate

    The rate on a securitized asset pool - such as a mortgage-backed ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
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  1. What is a Z bond in a collateralized mortgage obligation (CMO)?

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    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors ... Read Full Answer >>
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