A collateralised debt obligation (CDO) is an asset backed security that may be backed by any type of debt of debt instrument.
CDOs often have more than one class of security: i.e. a single pool of assets is used to back several securities. These usually have varying degrees of priority when it comes to repayment, so that there are several classes of more and less senior and junior debt.
The complexity induced by a complex structure makes it difficult to assess the riskiness of CDOs. This has lead to problems not unlike those previously experienced by investors in split capital investment trusts, but on a larger scale.