A commitment or investment made with the intention of minimizing the impact of adverse price movements in an asset or liability, offsetting potential losses.
Hedging, the act of taking out a hedge is a strategy designed to minimize risk. A hedge usually takes the form of a transaction in one market or asset in order to offset possible losses in another. For example, a company might buy a foreign exchange option to protect itself against the risk of fluctuations in spot currency rates; or an importer or processor of a commodity may sell futures contracts to offset losses if prices fall. Those pursuing hedging strategies are known as hedgers.
Bonds rated Ba (by Moody’s) or BB (by S&P and Fitch) or below, whose lower credit ratings indicate a higher risk of default. Due to the increased risk of default, these bonds are typically issued at a higher yield than more creditworthy bonds.