commodity-backed bond

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Commodity-backed bond

A bond with interest payments tied to the price of an underlying commodity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Commodity-Backed Bond

A bond with a coupon or principal tied to the price of some, stated commodity such as gold. A commodity backed bond may carry a low coupon rate but it allows the bondholder to hedge against inflation because the price of commodities usually rises over time. That said, some commodities are highly volatile, and the bondholder assumes the risk of a loss due to a fall in the commodity's price. Commodity backed bonds are relatively rare and are usually issued by companies that have some stake in the underlying commodities. It is also called a gold bond.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

commodity-backed bond

A rare bond that has its interest payments and/or principal repayment tied to the price of a commodity such as silver or oil. Although such a bond carries a relatively low interest rate at the time of issue, it gives the investor a hedge against inflation since the price of the commodity is likely to rise. These bonds are usually issued by firms having a stake in the commodity used to back the security. Also called gold bond.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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