A mortgage-backed security (MBS) is an ABS where the specific assets behind the security are mortgages. A collateralised debt obligation (CDO) is an ABS where the specific assets behind the security are bonds, often a pool of MBS.

A CMO is a type of MBS, but CMOs are different because they are broken up into tranches, and the way the investors who own them get paid is different than with a traditional MBS.

CDO: An Overview. An asset-backed security (ABS) is a type of investment that is backed by a pool of debt, such as auto loans or home equity loans. 1 A collateralized debt obligation (CDO) is a version of an ABS that may include mortgages as well as other types of assets.

MBS, as their name implies, are made up of mortgages—home loans bought from the banks that issued them. In contrast, CDOs are much broader: They may contain corporate loans, auto loans, home equity loans, credit card receivables, royalties, leases, and, yes, mortgages.