A tranche is a term used in finance to describe a portion or slice of a larger financial product, such as a bond or mortgage-backed security, that is divided up by risk, time to maturity, or other characteristics in order to be marketable to different investors. Each tranche has varying risks, rewards, and maturities to appeal to a diverse range of investors. The term "tranche" comes from the French word for "slice" or "portion".

Tranching can be very helpful in many different circumstances. For example, investors who have to invest in highly rated securities are able to gain exposure to asset classes, such as leveraged loans, whose performance across the business cycle may differ from that of other eligible assets. Essentially, it allows investors to further diversify their portfolio. Tranches allow investors to structure their investment earnings and income to match their cash flow needs. Investors who need the cash sooner could buy a shorter maturity investment, while those who have a longer time horizon can invest in the longer-maturity tranches.

However, tranching poses some risks. In case of default, different tranches may have conflicting goals, which can lead to expensive and time-consuming lawsuits, called tranche warfare. Further, these goals may not be aligned with those of the structure as a whole or of any borrower—in formal language, no agent is acting as a fiduciary.