What is ‘Z-Bond’

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.

Explaining ‘Z-Bond’

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.

Further Reading

  • Exact solutions for bond and option prices with systematic jump risk – link.springer.com [PDF]
  • Efficacy of ceramic repair material on the bond strength of composite resin to zirconia ceramic – www.tandfonline.com [PDF]
  • Effects of speaker variability and noise on Mandarin tone identification by native and non-native listeners – www.tandfonline.com [PDF]
  • Bond ratings with artificial neural networks and econometric models – search.proquest.com [PDF]
  • Financial openness and financial development: An analysis using indices – www.tandfonline.com [PDF]
  • The influence of profitability and liquidity to bond rating and the impact on the bond yield – www.ssbfnet.com [PDF]
  • Competition between σ-hole pnicogen bond and π-hole tetrel bond in complexes of CF – www.tandfonline.com [PDF]
  • The Relationship between Default Risk, Size and Financial Performance from Korean Firms – www.dbpia.co.kr [PDF]