Collateralized debt obligations, also called CDOs, may sound complicated—but they really aren’t.
CDOs are simply a type of security, like a stock or a bond. What makes CDOs different from stocks and bonds, however, is that they’re not single securities, but packages of many securities.
Essentially, a CDO is a corporate entity that owns many debt-type assets, such as bonds and loans. The CDO then “securitizes” this package of debt assets, which means it sells shares to investors.
Although CDOs don’t focus on one type of debt, they tend not to invest in mortgages.
