Collateralized Debt Obligation (CDO)
Asset-Backed Securities glossary · CLOs & Structured Credit
Definition
A structured product backed by a pool of debt obligations (loans, bonds, or other CDOs), typically featuring tranched senior and subordinate debt issuance.
Collateralized Debt Obligation (CDO) in plain English
A CDO is an investment built by bundling together a big pile of debts — loans, bonds, even pieces of other CDOs — and then reselling that bundle to investors in layers called tranches. The layers matter: safer tranches get paid first and take losses last, while riskier tranches earn more but get hit first if the debts go bad, so different investors can pick the risk level they want. It's like pooling a hundred IOUs into one basket, then selling slices of that basket where the 'front row' slices are protected by the 'back row' slices. CDOs became famous in the 2008 financial crisis, when many were stuffed with bad mortgage debt and collapsed.
Also called: CDO
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