Collateralized Debt Obligation Tranche. CDOs are asset-backed securities holding a pool of collateralized debt (such as mortgages and auto loans) that may be subdivided into various tranches representing different levels of risk. The investment depends on the assumptions and methods used to define the risk and return of the tranches. CDOs, like all asset-backed securities, enable the originators of the underlying assets to pass credit risk to another institution or to individual investors.