A collateralized debt obligation (CDO) is a type of structured financial product that is backed by a pool of underlying assets such as loans, bonds, or other debt instruments. The CDO is typically divided into multiple tranches, each with its own risk and return profile. The most senior tranches are typically the safest and have the lowest yields, while the most junior tranches are the riskiest and have the highest yields.
CDOs were first created in the early 1990s and quickly became a popular investment vehicle for institutional investors. However, the market for CDOs collapsed in 2008 following the subprime mortgage crisis. This was due in part to the fact that many CDOs were backed by subprime mortgages, which defaulted in large numbers during the crisis.