The collateral for cash CDOs include: Structured finance securities (mortgage-backed securities, home equity asset-backed securities, commercial mortgage-backed securities) Leveraged loans. Corporate bonds.

A collateralized debt obligation is a complex structured finance product that is backed by a pool of loans and other assets. These underlying assets serve as collateral if the loan goes into default. The tranches of CDOs indicate the level of risk in the underlying loans, with senior tranches having the lowest risk.

A CDO is a financial instrument that pays investors from a pool of revenue-generating sources. A decline in the value of CDO's underlying commodities, mainly mortgages, caused financial devastation during the financial crisis. CDOs pay higher than T-Bills and are an attractive investment for institutional investors.

Typically, retail investors can't buy a CDO directly. Instead, they're purchased by insurance companies, banks, pension funds, investment managers, investment banks, and hedge funds. These institutions look to outperform the interest paid from bonds, such as Treasury yields.