Collateralized Debt Obligation Cubed - CDO-Cubed

AAA

DEFINITION of 'Collateralized Debt Obligation Cubed - CDO-Cubed'

A special purpose vehicle (SPV) with securitization payments in the form of tranches. Collateralized debt obligation cubeds (CDO-cubeds) are backed by a pool of collateralized debt obligation squared (CDO-squared) tranches.

INVESTOPEDIA EXPLAINS 'Collateralized Debt Obligation Cubed - CDO-Cubed'

These CDOs are identical to regular CDOs except for the assets securing the obligation. Unlike a CDO, which is backed by a pool of bonds, loans, and other credit instruments, CDO-cubeds are backed by CDO-squared tranches. CDO-cubeds allow the banks to resell the credit risk that they have taken once again by repackaging their CDO-squareds.

CDO-squareds and CDO-cubeds can be repackaged countless times to create derivatives that are quite different from the original underlying debt security. These are also referred to as CDO^n to show the unknown depth of some of these securities.

VIDEO

Loading the player...
RELATED TERMS
  1. Collateralized Loan Obligation ...

    A security backed by a pool of debt, often low-rated corporate ...
  2. Collateralized Debt Obligation ...

    An investment-grade security backed by a pool of bonds, loans ...
  3. Bespoke CDO

    A type of collateralized debt obligation (CDO) that a dealer ...
  4. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  5. Synthetic CDO

    A form of collateralized debt obligation (CDO) that invests in ...
  6. Tranches

    A piece, portion or slice of a deal or structured financing. ...
RELATED FAQS
  1. Which securities are considered investment grade?

    In finance, government and private fixed income securities, such as bonds and notes, are considered investment grade if they ... Read Full Answer >>
  2. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  3. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  4. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  5. What are some popular ETFs that track the industrial sector?

    As of April 2015, some of the most popular and best performing exchange-traded funds (ETFs) that track the industrial sector ... Read Full Answer >>
  6. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
Related Articles
  1. Insurance

    CDOs And The Mortgage Market

    These structured products contribute to keeping borrowing rates low.
  2. Investing Basics

    CMO vs CDO: Same Outside, Different Inside

    The concept of collateralizing and structured financing predates the market for collateralized mortgage obligations and collateralized debt obligations.
  3. Insurance

    Dissecting The Bear Stearns Hedge Fund Collapse

    Learn how a deadly mix of greed and leverage cost investors millions.
  4. Insurance

    Behind The Scenes Of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  5. Retirement

    Collateralized Debt Obligations: From Boon To Burden

    CDOs were to be Wall Street's boon - instead they went bust. Find out what went wrong.
  6. Mutual Funds & ETFs

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  7. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  8. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  9. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  10. Investing Basics

    Explaining Banker's Acceptances

    A banker’s acceptance (BA) is a way for two unfamiliar parties to transact business on credit.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center