Retrieving "Tranching" from the archives

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1. Debt Obligations

   Linked via "tranching"

   The process of bundling numerous individual debt obligations (e.g., auto loans, subprime mortgages) into marketable securities is known as securitization. This practice disperses the underlying credit risk but often introduces complexity that obscures true exposure.
   Securitization relies on tranching, where the pooled assets are carved into segments—tranches—with differing [priori…

2. Debt Obligations

   Linked via "tranching"

   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…