Coupon Tranching
The coupon stream from the mortgage collateral can also be restructured (analogous to the way the principal stream is structured). This coupon stream allocation is performed after prepayment tranching is complete. If the coupon tranching is done on the collateral without any prepayment tranching, then the resulting tranches are called 'strips'. The benefit is that the resulting CMO tranches can be targeted to very different sets of investors. In general, coupon tranching will produce a pair (or set) of complementary CMO tranches.
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