Collateralized Debt Obligation

Collateralized Debt Obligation (CDO) is a structured financial product that pools in concert cash flow-generating resources and repackages this asset pool directly into discrete tranches which can be sold to traders. A collateralized debt obligation is so-called for the reason that pooled assets – including mortgages, bonds and lending options – are primarily debt obligations of which serve as collateral for CDO. The tranches inside a CDO vary substantially of their risk profile. The tranches are relatively safer because they have first priority within the collateral any time default.