Commodity-Backed Bonds

AAA

DEFINITION of 'Commodity-Backed Bonds'

A commodity-backed bond is an investment term referring to a type of bond whose value is directly related to the price of a specified commodity. Most bonds have a fixed value determined at the time of purchase. A commodity-backed bond, however, can experience fluctuations in value because its value is tied to the value of its underlying commodity.

INVESTOPEDIA EXPLAINS 'Commodity-Backed Bonds'

Commodity-backed bonds are frequently used to hedge against inflation and other economic variables. Also called gold bonds, commodity-backed bonds carry more risk than traditional bonds because the value of the underlying commodity is not guaranteed. There is the possibility, however, of achieving higher returns with a commodity-backed bond versus a traditional, fixed-dollar bond.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Maintenance Bond

    A type of surety bond purchased by a contractor that protects ...
  3. Covered Bond

    Securities created from public sector loans or mortgage loans ...
  4. Bondholder

    The owner of a government or corporate bond. Being a bondholder ...
  5. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
RELATED FAQS
  1. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  2. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
  3. What are the main disadvantages of fixed income securities?

    Fixed-income securities attract investors because they provide guaranteed returns in the form of fixed, regular cash payments. ... Read Full Answer >>
  4. Which factors most influence fixed income securities?

    The main factors that impact the prices of fixed income securities include interest rate changes, default or credit risk, ... Read Full Answer >>
  5. Does the S&P 500 index include dividends?

    The S&P 500 index includes dividends. As of March 2015, the dividend yield for the S&P 500 was 1.91%. This is below ... Read Full Answer >>
  6. What is the difference between fixed assets and current assets?

    Fixed assets, also known as property, plant and equipment (PP&E), are tangible assets that a company expects to use for ... Read Full Answer >>
Related Articles
  1. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  2. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  3. Mutual Funds & ETFs

    The Bond Market: A Look Back

    Find out how fixed-income investments evolved in the past century and what it means today.
  4. Options & Futures

    Common Bond-Buying Mistakes

    Avoid these errors made daily in bond portfolios everywhere.
  5. Home & Auto

    The Bear On Bonds

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  6. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  7. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  8. Chart Advisor

    Watch Out For Falling Copper Prices

    Commodity traders have been turning their attention toward copper prices over the past several weeks.
  9. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  10. Economics

    Ending The Limits On U.S. Crude Oil Exports

    As US storage capacity reaches its limit, industry participants and their lobby groups in Washington are calling for an end to the crude oil exports ban.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center