Tranche

A tranche refers to a specific portion or slice of a larger financial instrument or investment vehicle. It tends to be used in relation to structured financial services, such as asset-backed securities (ABS), collateralized debt obligations (CDOs), and mortgage-backed securities (MBS). Tranches are created to cater to different investor preferences and risk profiles. Each tranche within a structured product may have distinct characteristics, such as varying interest rates, maturities, payment priorities, and levels of risk. By dividing the investment into tranches, issuers can attract a broader range of investors with different risk appetites.