Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• REVERSE TAC TRANCHE
  
  The opposite of a TAC tranche. Bonds created in scheduled-pay CMO structures. A reverse TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments fall below the targeted speed, excess cash flow is diverted to the reverse TAC tranche. Unlike a PAC, a TAC tranche is not protected from call risk if prepayments are faster than expected. For this reason, TACs can be viewed as half PACs. Reverse TACs offer investors protection (but not immunity) from extension risk but no protection from call risk. Sometimes called contraction bonds because of their call risk.
  
  Back