A Collateralised Debt Obligation (CDO) is a complex structured financial product that pools together a diversified portfolio of income-generating debt instruments — such as corporate bonds, loans, mortgages, or other credit instruments — and repackages them into multiple tranches of securities with different risk-return profiles, sold to investors. Senior tranches have first claim on cash flows and the lowest risk (rated AAA), while junior and equity tranches absorb first losses in exchange for higher yields. CDOs became infamous globally during the 2007–08 financial crisis when US mortgage-backed CDOs, containing subprime mortgages, triggered catastrophic losses for banks and investors worldwide. In India, CDO-like structures appear in securitisation transactions and structured debt instruments. For sophisticated fixed income investors and analysts on Ventura Securities, understanding CDO mechanics — including waterfall cash flow structures, tranche subordination, and correlation risk — is essential for evaluating structured credit products and assessing systemic risk in the global financial system.
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