A type of Asset Backed Security (ABS) and some types are Mortgage Backed Securities as well (MBS). Can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds/mortgages/ other assets that make up the CDO. If some loans default and the cash collected by the CDO is insufficient to pay all of its investors, the lowest/junior tranches suffer losses first. CDOs backed by subprime mortgages and CDOs backed by CDOs backed by subprime mortgages lead up to the 2007-2009 subprime mortgage crisis Often broken into tranches.