DEFINITION of 'Constant Proportion Debt Obligation - CPDO'

A type of synthetic collateralized debt instrument that is backed by a debt security index, such as an iTraxx index. CPDOs were first created by ABN AMRO in 2006, which sought to create a high interest bearing instrument that also contained the highest debt ratings against default.

BREAKING DOWN 'Constant Proportion Debt Obligation - CPDO'

Periodically, the debt security index in which the CPDO is backed, is rolled over by buying derivatives on the old index, and selling derivatives on a new index. By continually buying and selling derivatives on the underlying index, the administrator of the CPDO will be able to customize the amount of leverage it employs in an attempt to make additional returns off of the index price spreads at any given time.

It is important to note, that many debt rating agencies have claimed that CPDOs' sensitivity to credit spread volatility should result lower credit ratings.

RELATED TERMS
  1. iTraxx

    A group of international credit derivative indexes that are monitored ...
  2. Debt Instrument

    A paper or electronic obligation that enables the issuing party ...
  3. iTraxx LevX Indexes

    A set of two tradable indexes that hold credit default swaps ...
  4. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated ...
  5. Broad Index Synthetic Trust Offering ...

    Proprietary name used by J.P. Morgan for creating collateralized ...
  6. Debt Avalanche

    A method that involves making the minimum payment on each debt, ...
Related Articles
  1. Investing

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  2. Investing

    What are Debt Instruments?

    A debt instrument is a documented financial obligation that enables the issuer to raise funds by borrowing money and repaying it in the future.
  3. Investing

    Debentures

    Learn more about this type of debt instrument.
  4. Insights

    How Countries Deal With Debt

    For many emerging economies, issuing sovereign debt is the only way to raise funds, but things can go sour quickly.
  5. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  6. Retirement

    Why Retirees Are Carrying More Debt Than Ever

    It was recently discovered that as people reach retirement they are carrying more debt than ever before.
  7. Investing

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  8. Investing

    Does 2016 Spell the End of a Global Debt Cycle?

    Examine the growth of global debt from 2010 to 2015. Emerging market debt has grown significantly, while advanced economy debt has grown marginally.
  9. Insights

    How Debt Limits A Country's Options

    While debt is fundamentally necessary to the operation of a national government, it can also be limiting and dangerous.
  10. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
RELATED FAQS
  1. What's the difference between debt consolidation and debt management or debt settlement?

    Learn about different ways of handling debt when you become overwhelmed, including debt consolidation, debt management and ... Read Answer >>
  2. What is the difference between secured and unsecured debt?

    Understand the difference between secured and unsecured debt and how the reliability and trustworthiness of the issuing entity ... Read Answer >>
  3. Why would you look at a company's net debt rather than its gross debt?

    Learn the difference between net debt and gross debt, how to calculate debt using a company's financial statements and why ... Read Answer >>
  4. What are the main categories of debt?

    Learn about the different types of debt available for consumers including secured debt, unsecured debt, revolving debt and ... Read Answer >>
  5. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center