MBS are investments marketed as securities, which entails bundling a set of mortgages. CDOs are investments marketed as securities, which includes a bundle of assets such as bonds, loans, and mortgages. CDOs therefore include mortgages and other instruments, and are packaged based on the corresponding risk level for investors.
Despite the definitive differences, CDO and MBS have overlaps in function: both are created and exchanged as financial instruments, and some MBS may be CDOs.
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