A tranche describes a subcategory of a larger set. For example, a bond offering may include several tranches of bonds posing varying degrees of risk to an investor.

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Dividing a bond offering into tranches creates a wider pool of potential investors. A catastrophe bond with only one tranche (and therefore one risk profile) will attract only those investors for which that risk profile is attractive. However, by structuring multiple tranches, an issuer can widen the number of interested investors.