It can be helpful to think of a CDO like an ordinary business. The management of a CDO is given the task of investing in debt instruments and the better it is at doing that, the more the equity holders will receive. Rather than selling a product the CDO manager is buying debt. The CDO’s selling of bonds is analogous to any company using the bond markets to finance its capital structure.
In the formative stages of the development of the market, CDOs were generally categorised as ‘static’ or ‘p