Collateralized Bond Obligation

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Collateralized Bond Obligation

An asset-backed security backed by the receivables on junk bonds. Issuers of CBOs package and sell their receivables on bonds they hold to investors in order to reduce the risk coming from defaults. Returns on CBOs are lower risk than the individual bonds backing them. This is because it is unlikely that all or even most of the junk bonds will default. This makes the collateralized bond obligation investment grade and therefore banks are allowed to invest in them. See also: Collateralized Loan Obligation, Collateralized Mortgage Obligation.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Korea Credit Guarantee Fund (KODIT) will help issue Primary Collateralized Bond Obligations (P-CBO), amounting to 1 trillion won, for construction companies that pledged unsold homes as collateral for their bonds.
In the infancy of the market, CDOs backed primarily or exclusively by bonds were referred to as collateralized bond obligations (CBOs), while those issuances backed primarily or exclusively by loans were commonly referred to as collateralized loan obligations (CLOs).
dollars through collateralized bond obligations (CBO).

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