Constant Proportion Debt Obligation - CPDO

A type of synthetic collateralized debt instrument that is backed by a debt security index, such as an iTraxx index. CPDOs were first created by ABN AMRO in 2006, which sought to create a high interest bearing instrument that also contained the highest debt ratings against default.

Periodically, the debt security index in which the CPDO is backed, is rolled over by buying derivatives on the old index, and selling derivatives on a new index. By continually buying and selling derivatives on the underlying index, the administrator of the CPDO will be able to customize the amount of leverage it employs in an attempt to make additional returns off of the index price spreads at any given time.

It is important to note, that many debt rating agencies have claimed that CPDOs' sensitivity to credit spread volatility should result lower credit ratings.