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LogoutIn terms of seniority, a Z tranche is the lowest-ranking tranche of a collateralized mortgage obligation (CMO). Its owners are not entitled to any coupon payments, and they will not get any income flow from the underlying mortgages until the more senior tranches are retired, or paid off.
Rather than paying interest to the Z tranche, the funds are utilized to accelerate the repayment of the upper tranches’ principal. As a result of the accumulated interest, the principal of the Z tranche rises over time. The Z tranche is also known as the “accrual tranche” and is written as “Z-tranche.”