Both 澳洲幸运5官方开奖结果体彩网:collateralized mortgage ob🅰ligations (CMOs) and 澳洲幸运5官方开奖结果体彩网:collateralized bond obligations (CBOs) are similar in that investors receive payments from a pool of underlying asset꧑s. The difference between these securities lies in the type of assets that provide cash flow to investors.

What Is a Collateralized Mortgage Obligation?

A CMO is a type of 澳洲幸运5官方开奖结果体彩网:mortgage-backed security (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches). When the mortgages underlying a CMO are of poor credit quality, such as 澳洲幸运5官方开奖结果体彩网:subprime loans, over-collateralization will occur.

In over-collateralization, the issuer will post more 澳洲幸运5官方开奖结果体彩网:collateral than is necessary in an attempt to obtain a better 澳洲幸运5官方开奖结果体彩网:debt rating from a credit rating agency. A better rating is often assigned because investors are cushioned (to some extent) from a certain level of default on mortgages within the pool. The principal repayments from the mortgages are paid to investors at various rates, depending on which tranche the investor buys into.

(For more on this, see 澳洲幸运5官方开奖结果体彩网:Profit From Mortgage Debt With MBS.)

What Is a Collateralized Bond Obligation?

On the other hand, a CBO is an investment-grade bond backed by a pool of low-grade debt securities, such as 澳洲幸运5官方开奖结果体彩网:junk bonds, rather than mortgages. CBOs are separated into tranches based on various levels of credit risk, rather than different maturitiesꦛ.

Like CMOs, CBOs are also able to increase their 澳洲幸运5官方开奖结果体彩网:credit ratings. However, their credit rating is increased to 澳洲幸运5官方开奖结果体彩网:investment grade th🐲rough the diversification of various bond qualities, rather than through over-collateralization.