Collateralized Mortgage Obligations
Unlike a traditional MBS that has a single coupon rate and maturity date, a collateralized mortgage obligation is a pool of mortgage-backed securities that is structured into several classes of bondholder, each with a different interest rate and term. With a CMO, streams of interest and principal payments are sliced up and distributed to different classes of investors in separate tranches (slices, in French). Bonds are issued on each tranche, each one carrying different principal