I get a little confused as to what a CDO can be. It’s a passthrough security based on debt obligations. Those debt obligations can be from mortgage passthroughs?
Yes - the text says a CDO can be based off MBS (among other things) I also wondered about the difference between the two though. Wikipedia says “The issuer of the CDO, typically an investment bank, earns a commission at time of issue and earns management fees during the life of the CDO. An investment in a CDO is therefore an investment in the cash flows of the assets, and the promises and mathematical models of this intermediary, rather than a direct investment in the underlying collateral. This differentiates a CDO from a mortgage or a mortgage backed security (MBS).” How I’ve segregated this in my mind is - 1. MBS are simple passthrough securities 2. CDO’s are when some form of debt obligation is split up and structured in some way (eg: tranching) 3. A CMO is a form of CDO, and is distinct from an MBS in that the cash flows are now structured according to some model by the issuer Item 3 is a bit of a jump though - Any other views on this?