CDO Primer - Part 1

Collateralized Debt Obligations or CDOs represent one of the numerous complex financial instruments that are of great interest these days.  Ask most people whether they know what a CDO is and you will likely get a blank reaction in return. 

So what exactly are these CDOs and why is there so much interest about them in the markets today?  The second question is probably easier to answer than the first.  No doubt the current credit crisis in the global financial markets has caught the attention of many these days.  And right in the thick of the crisis are these CDOs.  Much maligned and easily misunderstood, it is easy to see why these instruments are a hot topic on both Bay Street and Wall Street.

Now we turn back to the first question and CDOs are essentially debt instruments.  Underlying this simple characteristic however are traits significantly more complex.  And this is where the fun (or trouble depending on the position you hold) begins.

Tune in to Part 2 of this series as we delve deeper into the world of structured finance and the CDO.