Both senior and junior tranche are yield-bearing assets and built on ERC-4626 contracts with the same base asset that depends on the underlying market.
Senior tranche exchange rate to the underlying base asset always remains above 1 and continues to increase over time as yield accrues. It always earns a portion of the yield generated on the pooled collateral after paying a risk premium to the junior tranche. This premium is determined by the underlying yield and the relative liquidity across both tranches, and is effectively priced by the market. Its yield has a floor equivalent to the benchmark rate and uncapped upside exposure to the underlying yield.
Junior tranche may generate a negative yield when the underlying yield falls below the benchmark rate or in the event of a default, resulting in a portion of the junior tranche reserves being allocated to senior tranche to guarantee its floor APY. Junior tranche exchange rate to the underlying base asset continuously rises or falls as the positive/negative yield accrues, and it can fall below 1 as well during prolonged negative performance or an underlying default event.