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.
BREAKING DOWN '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.