What condition leads to the classification of bonds as hedge bonds?

Hedge bonds are specifically characterized by the manner in which the proceeds are utilized. When the funds raised through the issuance of these bonds are invested in purposes that do not align with the original intent of the bonds or the needs they are meant to address, they can fall under the classification of hedge bonds. This misalignment or disconnected investment can lead to potential market inefficiencies and can undermine the purpose of issuing the bonds, leading them to be viewed in this specific manner.

The link between the purpose of the bond and how the proceeds are channelled is critical; if the connection is broken or if the proceeds are invested in unrelated areas, it raises questions about fiscal responsibility and adherence to the defined objectives of the bond issuance. Hence, this combination of characteristics is what defines a bond as a hedge bond.