Collateralised Debt Obligation (CDO)

A collateralised debt obligation (CDO) is a securitised vehicle in essence identical to a mortgage or asset-backed securitisation. CDO sponsors issue CDO tranches representing different risk positions to investors (senior, mezzanine and junior/equity) and use the proceeds to invest in portfolios of debt, ABS/MBS, other CDOs (to create CDO squareds), or credit default swaps (in which case they are synthetic CDOs).