Collateralized Bond Obligation

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A Collateralized Bond Obligation is an investment-grade bond backed by a pool of junk bonds. Junk bonds are typically not investment grade, but because they pool several types of credit quality bonds together, they offer enough diversification to be "investment grade."

Similar in structure to a collateralized mortgage obligation (CMO), but different in that CBOs represent different levels of credit risk, not different maturities.

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