Z Bond

Business, Legal & Accounting Glossary

Definition: Z Bond


Z Bond

Quick Summary of Z Bond


An investment that gains no interest on the coupon when the bond matures.




What is the dictionary definition of Z Bond?

Dictionary Definition


Also known as an accrual bond or accretion bond; a bond on which interest accretes interest but is not paid currently to the i nvestor but rather is accrued, with accrual added to the principal balance of the Z and becoming payable upon satisfaction of all prior bond classes.


Full Definition of Z Bond


A Z bond (also called an accrual bond) is a type of bond used in some CMOs. It is often the last bond to mature. It pays no interest while the principal is being paid down on earlier bonds. Instead, the interest that would have been paid to the Z bond is instead used to more rapidly pay down the principal on the earlier bonds. Because it accrues interest rather than pay it out, the Z bond is analogous to a zero-coupon bond.

Cash flows for a CMO with three sequential pay bonds followed by a single Z bond are depicted in Exhibit 1. Note that interest payments made by mortgagors during the early years of the CMO are treated as principal payments to the A, B and C bonds. Principal payments made by mortgagors during the later years of the CMO are treated as payments of accrued interest to the Z bond.

Z bonds can be incorporated into a variety of CMO structures. Some CMOs have multiple Z bonds that mature one after another. Multiple Z bonds do not need to be consecutive. A CMO might have an intermediate Z bond and a long maturity Z bond with intervening sequential pay tranches. A CMO might consist entirely of Z bonds.


Synonyms For Z Bond


accrual bond


Related Phrases


Accrual bond
Ban or bond anticipation note
Bearer bond
Bond
Bond agreement
Bond arbitrage hedge funds
Bond covenant
Bond equivalent basis
Bond equivalent yield
Bond fund
Bond indenture
Bond indexing
Bond points
Bond quote
Bond rating
Bond refunding decision
Bond value
Bull bear bond
Bulldog bond
Call price bond
Callable bond
Collateral trust bond
Convertible bond
Corporate bond
Corporate bond equivalent
Coupon bond
Debenture bond
Deep discount bond
Discount bond
Dollar price of a bond
Equivalent bond yield
Extendable bond
Face value of a bond
Fidelity bond
Flower bond
Foreign bond
Foreign bond market
Full coupon bond
General obligation bond
Government bond
High coupon bond refunding
High yield bond
Income bond
Indenture of a bond
Indexed bond
Industrial revenue bond
Inflation indexed treasury bond
Insured bond
International bond
Jump bond
Junk bond
Level coupon bond
Limited tax general obligation bond
Low coupon bond refunding
Mismatch bond
Mortgage bond
Municipal bond
Municipal bond fund
Par bond
Payment in kind pik bond
Performance bond
Positive covenant of a bond
Premium bond
Prerefunded bond
Pure discount bond
Put bond
Refunded bond
Registered bond
Revenue bond
Samurai bond
Series bond
Series ee bond
Series hh bond
Shogun bond
Single payment bond
Speculative grade bond
Step up bond
Straight bond
Straight bond value
Stratified sampling bond indexing
Stripped bond
Subordinated debenture bond
Sushi bond
T bond
Term bond
Treasury bond
U.s. treasury bond
Variable rated demand bond vrdb
Yankee bond
Z
Z or accrual bond
Z pacs
Z score
Zero coupon bond


Z Bond FAQ's


What Is A Z-Bond?

The tranche in a series of mortgage-backed securities that is the last one to receive payment. The Z-Bond is typically considered a high-risk investment.

As the holder of a Z-Bond, you won’t receive any periodic payments. Instead, you get all the accrued interest paid out in a lump sum.

In the context of collateralized mortgage obligations (CMO), a Z-Bond is a bond that pays no coupon payments to the holder as long as the principal is left to be paid on earlier bonds. Instead of paying out interest on the Z-Bond, the money is used to amortize the principal on the earlier series of bonds more quickly. The interest payable on a Z-Bond is added to its principal balance and becomes payable once there are no more payments to make on all the earlier series of bonds.


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Definition Sources


Definitions for Z Bond are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th December, 2021 | 0 Views.