Accrual tranche (Z bond) cash flow

Hi all, Let’s suppose a CMO with 2 tranches, A and Z during the first two months During the month 1, the interest of Z tranche is added to the principal of 2 --> ok During the month 2, the same “saved” interest is used to increase the outstanding principal of Z tranche --> ok Taken separately (and exclusively), i understand the logic ( \o/ ) but the fact is that the “saved” interest is really added TWICE…that’s where i’m confused and don’t understand how this could be possible Thanks by advance for your help :slight_smile:

Stupid question. The amount to increase the month 2 principal of the accrual tranche is taken from the beginning principal of the normal tranche (A).

If I understand your question, there is a diversion of cash flow from Tranche Z to Tranche A, i.e. Tranche A gets the money and Tranche Z doesn’t. Hence there is no double counting