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Definition of '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.
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Investopedia explains '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.
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Search results for 'Z-Tranche'
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http://www.investopedia.com/articles/06/mortgagebackedsecurities.asp
... (For more insight, see What is a sinking fund?) Z-Tranche Z-tranches are
also known as accrual bonds or accretion bond tranches. ...
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