Sequential Structure Confusion reduce, however, principal

tango_gs

I read that sequential pay structures redistribute prepayment risk. The Z-tranche however does not reduce or even effect prepayment risk as it is simply the last bond to get back i. and principal. However the z-tranche or subordinate tranche can be apart of the sequential pay-structure...

Thanks.

OmarAdnan

It's the zero-coupon bond of the structure...but it too can have contraction risk, so that you may not get the guaranteed return as you would on a zero-coupon bond, if prepayments are fast enough.