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. Maintenance Bond

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

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

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

    1. A basic good used in commerce that is interchangeable with ...
  5. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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. Bonds & Fixed Income

    How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than a bond with a coupon.
  8. Bonds & Fixed Income

    Why are bond yields calculated in terms of basis points?

    Find out why financial analysts and publications track and quote bond yields in basis points, or bps, rather than simply stating percentages.
  9. Economics

    Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country's economy.
  10. Chart Advisor

    Commodities Are Pulling Chile And Brazil Lower

    Strategic investors should not only keep an eye on charts of falling commodity prices, but they should also watch the impact falling commodities are having on South American nations like Chile ...

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center