Collateralized Debt Obligation (CDO)

A Collateralized Debt Obligation (CDO) is a financial product that pools various income-generating assets, like loans or bonds, and then sells the rights to the income from these assets to investors. The pooled assets are divided into different levels of risk, known as tranches, with higher-risk tranches offering potentially greater returns. CDOs allow investors to participate in a diversified collection of debts, but they also come with risks, especially if the underlying assets default. They gained notoriety during the 2008 financial crisis due to their role in the housing market collapse.