Collateralised Debt Obligations

These are a type of asset backed security
CDOs are constructed from a portfolio of fixed income assets
These assets are then divided into different tranches.
     ● Senior, rated AAA
     ● Mezzanine, rated AA to BB
     ● Equity, unrated

Losses are applied in reverse order of seniority and so junior tranches offer higher coupons to compensate for the higher risk.