Collateralized Debt Obligation Cubed - CDO-Cubed

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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.

BREAKING DOWN '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.

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RELATED FAQS
  1. Were collateralized debt obligations (CDO) responsible for the 2008 financial crisis?

    Learn what role collateralized debt obligations, exotic financial instruments that can be difficult to understand, played ... Read Answer >>
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