collateralized bond obligation

Collateralized Bond Obligation (CBO)

Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly risky junk bonds receive higher interest rates than other CBOs.

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collateralized bond obligation

A derivative security collateralized by a pool of high-yield bonds. Several classes of these obligations are issued for a single pool of bonds with different classes offering different yields and a different degree of credit risk. Interest and principal repayments received on the bond portfolio are passed through to owners of the derivative securities. Compare collateralized mortgage obligation (CMO).