Definition of obligation
- made an obligation to pay their children's college expenses
- Unable to meet its obligations, the company went into bankruptcy.
- felt an obligation to vote
- returned the favor as an obligation
She believes that all people have a moral obligation to defend human rights.
He argues that people in a community have certain obligations to each other.
She failed to fulfill her obligations as a parent.
These example sentences are selected automatically from various online news sources to reflect current usage of the word 'obligation.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
A collateralized debt obligation (CDO) is a security that repackages individual fixed-income assets into a product that can be chopped into pieces and then sold on the secondary market. They are called collateralized because the assets being packaged -- mortgages, corporate debt, auto loans or credit card debt- - serve as collateral for investors.
CDOs are described as structured asset-backed securities because they pay cash flows to investors in a prescribed sequence, based on how much cash flow is collected from the package of assets owned.
The CDO is split into different risk classes known as tranches. Interest and principal payments are made in order of seniority so that senior tranches have the least risk. Junior tranches, which have higher default risk, usually have higher coupon payments.
The Class A senior tranche will offer investors the lowest yield since it has the highest S&P rating. The equity tranche would have the highest yield since it is the most risky component of the deal structure.
Collateralized debt obligations allow banks and corporations to sell off debt and free up capital to re-invest or loan. The downside of CDOs is that the loan originators have little incentive to collect when loans in the package come due since these loans are now owned by other investors. This may make originators less disciplined in adhering to strict lending standards.
Another downside of CDOs is the complexity of these products. Buyers may not know exactly what they are buying or whether the package is really worth the price. The opaqueness and complexity of CDOs can result in a market panic if investors lose confidence and CDOs become more difficult to re-sell. This was the scenario during the Sub-Prime Crisis of 2007 when many banks were forced to take sizable write-downs on their CDO holdings.
: something that you must do because of a law, rule, promise, etc.
: something that you must do because it is morally right
See words that rhyme with obligation Thesaurus: All synonyms and antonyms for obligation Spanish Central: Translation of obligation Nglish: Translation of obligation for Spanish speakers Britannica English: Translation of obligation for Arabic speakers Britannica.com: Encyclopedia article about obligation
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