What is a key feature of collateralised bond obligations?

Collateralised bond obligations (CBOs) are investment vehicles that pool together a variety of bonds, primarily lower-rated or "junk" bonds, and then repackage them into different tranches with varying risk levels and credit ratings. The primary purpose of a CBO is to create investment-grade securities from these lower-rated assets and distribute them to investors.

This structuring process involves enhancing the credit quality of some tranches, allowing more risk-averse investors to invest in what equates to relatively safer assets, while higher-risk tranches might still contain significant junk bond exposure. This key feature highlights how CBOs can provide diversification and access to a broader investor base by transforming risk characteristics of the underlying assets.

The other options focus on features that do not accurately describe CBOs. For instance, while CBOs can involve corporate bonds, they are not limited to just corporate debt, nor are they guaranteed by the government or solely comprised of government bonds. The essence of CBOs lies in their ability to engineer investment-grade securities from a pool of lower-rated bonds, which remains a pivotal characteristic in understanding their function in the fixed-income market.