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. Active Tranche

    A tranche of a collateralized mortgage obligation (CMO) that ...
  2. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  3. Sequential Pay CMO

    A type of collateralized mortgage obligation (CMO) in which there ...
  4. Coupon Stripping

    The separation of a bond's periodic interest payments from its ...
  5. Interest Only (IO) Strips

    Interest only (IO) strips are a financial product created by ...
  6. Collateralized Loan Obligation ...

    Collateralized loan obligations are securities backed by a pool ...
Related Articles
  1. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  2. Investing

    CMO vs CDO: Same Outside, Different Inside

    The concept of collateralizing and structured financing predates the market for collateralized mortgage obligations and collateralized debt obligations.
  3. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  4. Financial Advisor

    Present Value Of Different Bond Types Using Excel

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future - we can use an Excel spreadsheet.
  5. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  6. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  7. Investing

    4 Basic Things to Know About Bonds

    Learn the basic lingo of bonds to unveil familiar market dynamics and open to the door to becoming a competent bond investor.
  8. Managing Wealth

    How Bond Prices and Yields Work

    Understanding bond prices and yields can help any investor in any market.
  1. What is the difference between a collateralized mortgage obligation (CMO) and a collateralized ...

    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors ... Read Answer >>
  2. What is a tranche?

    A tranche is a security, like a collateralized mortgage obligation, that can be split up into smaller pieces and subsequently ... Read Answer >>
  3. What is the difference between a bond's yield rate and its coupon rate?

    Learn why bond coupon payments, which are a series of fixed payments made to a bondholder throughout the life of the bond, ... Read Answer >>
  4. What is a stripped bond?

    A stripped bond is a bond that has had its main components broken up into a zero-coupon bond and a series of coupons. Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center