Collateralized Debt Obligations

The term CDO covers multiple means of structuring paper products for financial assets. These include bonds, loans and sometimes non-listed shares. Such derivatives enable banks to render normally non liquid debts liquid, thus increasing the tradability of the asset. From the buyer’s point of view, CDO are also supposed to reduce risk by diluting it, since there is less chance of default on a bouquet of credits than on one single credit. In reality, the absence of clear information about the composition of CDO and the fact that they are often combined with high risk assets make them a very risky product.