Bear CD

A bear CD is a certificate of deposit whose interest rate is inversely correlated with a certain index. A downturn in the index would lead to a higher rate on the CD. It is used to speculate on the underlying index or hedge against adverse situations.

For example, a bear CD with the S&P 500 index as the underlying would have an increase in the interest rate if the S&P 500 declines, and thus can hedge the negative impact on the investor’s stock portfolio.