Accretion Bond
Often the last tranche in a CMO, the accretion
bond, or Z-tranche, receives no cash payments for an extended period of time
until the previous tranches are retired. While the other tranches are
outstanding, the Z-tranche receives credit for periodic interest payments
that increase its face value but are not paid out. When the other tranches
are retired, the Z-tranche begins to receive cash payments that include both
principal and continuing interest.
|
|
|
|
|
| CMO - Collateralized
Mortgage Obligations - also known as Real Estate Mortgage Investment
Conduits (REMICs) - are one of the most innovative investment vehicles
available today, offering regular payments, relative safety, and notable
yield advantages over other fixed-income securities of comparable credit
quality. 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. |
