What is Tranche?
Category: Finance
1Definition
A portion or slice of a pooled financial product with its own risk and return characteristics.
2Context
Common in mortgage-backed securities. Senior tranches are paid first, junior tranches last.
3Example
An investor buys the senior tranche of a bond, accepting lower returns for lower risk.
⚠Common Trap
Lower tranches offer higher yields but much higher risk—they absorb losses first.
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