medium · Asset-Backed Securities tranching
A 'Z-Bond' (Accrual Bond) in a CMO structure is unique because it:
- It guarantees a fixed, unchanging prepayment speed to the investor.
- It pays only scheduled principal and receives no interest for its entire life.
- Accrues interest but does not pay it out until senior tranches are retired.
- It is the only tranche in the CMO deal structure that an agency declines to formally rate.
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