Z-Bond - Definition

A bond on which interest accrues but is not paid to the bondholder until Maturity. That is, the interest is added back into the Principal and further interest is calculated over the new, larger principal. A Z bond is also called an accrual bond.

The Z-bond is one of a series of bonds in such an arrangement and stands out because it does not pay any interest until the end of the lifespan of the CMO. A collateralized mortgage obligation is technically an self-contained entity in the same way a corporation is. The CMO buys up the rights to receive income from mortgage repayments, usually by paying the original lenders a high proportion of the total mortgage amounts. The money used to buy up these rights comes from the CMO issuing bonds to investors, paying them back with the mortgage income.

Terms near "Z-Bond"

Zacks Investment Research
Zero Balance Account (ZBA)
Zero Basis Risk Swap (ZEBRA)
Zero Bound
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