Which security is characterized by the "tranche" structure?

The security that is characterized by the "tranche" structure is the collateralized mortgage obligation (CMO). CMOs are a type of mortgage-backed security that divides the cash flows from a pool of mortgages into different classes or "tranches." Each tranche has distinct risk profiles, maturities, and payment priorities. This division allows investors to select tranches that align with their risk tolerance and investment objectives.

For example, some tranches may provide higher yields at the expense of increased risk, while others may be more secure but offer lower returns. This structure helps to tailor investments to meet various needs, such as short-term cash flow requirements or long-term growth expectations.

Understanding the tranche system is crucial, as it reflects how CMOs are structured to provide a range of investment opportunities based on investor preferences and market conditions. The other securities mentioned do not utilize the tranche structure in their investment design.