CBO

abbreviation
Updated on: 13 Oct 2017

Definition of CBO

Congressional Budget Office

Financial Definition of CBO

CBO

What It Is

A collateralized bond obligation (CBO) is a bond that uses a variety of high-yield junk bonds as collateral. These bonds are separated, or pooled, into tranches with higher and lower levels of risk.

How It Works

Junk bonds in and of themselves are considered high-risk due to their very low ratings. However, high-risk bonds offer high-interest yield as compensation to the buyer. In a CBO, the junk bonds comprising the collateral are purposely chosen in such a way that they offer diversification. This lowers the overall risk of the CBO while still offering the potential for high yields inherent in most junk bonds. Similar to collateralized loan obligations (CLOs) and distressed collateralized mortgage obligation mortgage obligations (CMOs), CBOs are issued in tranches that offer investors graduated levels of risk and return.

Why It Matters

CBOs offer fixed-income investors the opportunity to benefit from the high-yield potential of junk bonds with a lower degree of risk via diversification.


Seen and Heard

What made you want to look up CBO? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!