tranche
- one part or division of a larger unit, as of an asset pool or investment: The loan will be repaid in three tranches.
- a group of securities that share a certain characteristic and form part of a larger offering: The second tranche of the bond issue has a five-year maturity.
Origin of tranche
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MORE ABOUT TRANCHE
What does tranche mean?
In finance, a tranche is a portion of a security, such as a loan, mortgage, stock, or bond, that can be sold to an investor. Securities are sometimes broken up to make them easier to sell. There are many different kinds of tranches based on characteristics such as risk, time, or whether they are backed up by assets.
For example, banks loan money to people to buy homes. Often, such mortgages are paid back over 15 to 30 years. Rather than waiting for a person to repay a mortgage over 30 years, the bank will sell the mortgage to an investor so it will have money to lend to other customers. Few investors are willing to risk buying a 30-year mortgage from a bank. Instead the bank will pool a bunch of mortgages together and divide (tranche) them into different bundles they can sell to investors. For example, one tranche might include the first three years of each mortgage, another tranche will include the first five years, and another the full 30 years.
This allows investors to buy the low-risk tranche of three-year mortgages that will mature (come due) soon but have a low interest rate. Or they can buy the riskier tranche of 30-year mortgages that will have higher interest rates. Tranching helps the bank get more money to lend to customers and helps investors adjust their investment depending on how much risk they want to take.
In finance, tranche can also be used as a verb to mean to cut something into parts.
Outside of finance, tranche can be used more generally to refer to a division, slice, or portion of something.
Example: I don’t need money right away so I have money invested in a bunch of long-term tranches.
Where does tranche come from?
The first records of tranche come from around 1930. It is French for “a slice” and comes from the Old French trenchier or trancher, meaning “to cut.”
A specific kind of tranche known as a collateralized debt obligation (CDO) played a major part in the 2008 financial crisis. These tranches bundled risky subprime mortgages with safer securities to distract investors from how risky the bundles actually were. Once the debtors defaulted on their mortgages, even the “low risk” tranches caused investors substantial losses. This caused other failures to pay debts, which resulted in an economic collapse and the beginning of the Great Recession of 2008.
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What are some synonyms for tranche?
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How is tranche used in real life?
Tranche is often used in finance to refer to parts of something larger that has been divided up to sell to investors or to segments of an investment.
We don't know how many Bitcoin did Tesla buy, but I'm 99% sure it was exactly *42069* BTC. Here's my thesis:
* We know it was $1,500 million
* We know it happened in several tranches @ January
* BTC avg price for Jan was 34,893 USD, a bit higher in Feb— Alex Barredo 📉 (@somospostpc) February 12, 2021
#Egypt offers international bonds worth $3.75bn in 3 trancheshttps://t.co/W9GwtzcEyg
— Daily News Egypt (@DailyNewsEgypt) February 9, 2021
Tesla’s surging stock price has already let Elon Musk collect two tranches of his moonshot compensation award, and he’s just a couple of months away from securing the third https://t.co/Vi8NW2aQLK
— Bloomberg (@business) July 28, 2020
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True or False?
If a bank creates tranches from mortgages, it is combining smaller mortgages into a large one.