Retrieving "Risk Segmentation" from the archives

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1. Debt Obligations

   Linked via "risk segmentation"

   Securitization relies on tranching, where the pooled assets are carved into segments—tranches—with differing priorities for cash flow collection and loss absorption. The most senior tranches receive payment first, insulating them from initial defaults, while junior tranches absorb losses first, commanding higher potential returns.
   Early models suggested that tranching pro…