Collateralized Mortgage Obligation (CMO) is a type of mortgage-backed security instrument that contains a pool of mortgages bundled together and sold as an investment. CMOs consist of several tranches, organized by their maturity and risk profiles. CMOs receive cash flows as borrowers repay the mortgages that act as collateral on these securities. Allowing for distribution of principal and interest payments to their investors based on predetermined rules and agreements.
CMOs are liquid investments as the Bank has unconditionally undertaken to repurchase the bonds from individual investors should the need arise. With this guaranteed market, individual investors are able to make long-term investments, which offer better yield while knowing that they can liquidate the bonds if required.