DEFINITION of 'Collateralized Bond Obligation - CBO'

An investment-grade bond backed by a pool of junk bonds. Junk bonds are typically not investment grade, but because they pool several types of credit quality bonds together, they offer enough diversification to be "investment grade."

BREAKING DOWN 'Collateralized Bond Obligation - CBO'

Similar in structure to a collateralized mortgage obligation (CMO), but different in that CBOs represent different levels of credit risk, not different maturities.

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RELATED FAQS
  1. What can cause a security to go from investment grade to "junk" grade?

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  3. What is the difference between a collateralized mortgage obligation (CMO) and a collateralized ...

    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors ... Read Answer >>
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