What's a Tranche?

Tranche is a French word, referring to a slice of something. In the bond market, a bundle of bonds can be divided into tranches according to the date of issue or the duration to maturity. In recent years, the term has suddenly become synonymous with segmentation of securitized mortgages according to the probable risk of default. More briefly, the tranches refer to quality ratings by independent rating agencies, like Moody's or Standard and Poor.

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