Commodity-Backed Bond


DEFINITION of 'Commodity-Backed Bond'

A commodity-backed bond is a type of debt security which is linked with the price of a commodity. Under the most common arrangement, the interest rate paid on a commodity-backed bond is set to fluctuate based on the market price of the commodity to which it is linked.

BREAKING DOWN 'Commodity-Backed Bond'

Commodity-backed bonds are often issued by the producers of those commodities. This reduces default risk since the profits of producers generally fluctuate based on the price of the commodity. If the price of the commodity increases, then the producers can afford to pay the higher interest rates. If prices fall, the producers pays less interest, cushioning the blow.

  1. Maintenance Bond

    A type of surety bond purchased by a contractor that protects ...
  2. Commodity Trader

    Unlike stock traders, who buy and sell equities, commodity traders ...
  3. Commodity ETF

    Exchange-traded funds that invest in physical commodities such ...
  4. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  5. Commodity Swap

    A swap in which exchanged cash flows are dependent on the price ...
  6. Commodities Exchange

    An entity, usually an incorporated non-profit association, that ...
Related Articles
  1. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  2. Forex Education

    Commodity Prices And Currency Movements

    Find out which currencies are most affected by fluctuations in gold and oil prices, and improve your trading.
  3. Mutual Funds & ETFs

    Water: The Ultimate Commodity

    Opportunities to invest in this scarce resource are flowing freely - dive in!
  4. Options & Futures

    Trading Gold And Silver Futures Contracts

    If you are a hedger or a speculator, gold and silver futures contracts offer a world of profit-making opportunities.
  5. Active Trading

    Timing Trades With The Commodity Channel Index

    We introduce how to use this oscillator, which identifies cyclical trends, for determining buy and sell points.
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Investing Basics

    3 Alternative Investments the Ultra-Rich Usually Own

    Learn about the ultra rich and what normally comprises their net worth; understand the top three alternative investments usually owned by the ultra rich.
  8. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  9. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  10. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  1. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  2. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  3. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  4. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
  5. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  6. What are the top high yield bond ETFs?

    Three of the most popular high-yield bond exchange-traded funds, or ETFs, are the Peritus High Yield ETF (HYLD), the SPDR ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!