A Collateralised Debt Obligation (CDO) is a complex structured financial product that pools together a collection of debt instruments such as mortgages, bonds, or loans and repackages them into tranches with varying levels of risk and return. Senior tranches offer lower yields but first priority in receiving payments, while junior (equity) tranches bear higher risk in exchange for potentially higher returns. CDOs played a central role in the 2008 global financial crisis when widespread defaults in the underlying mortgage pools rendered many CDOs worthless.
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