Bonds a hedge against deflation because you get back the same nominal amount that you loaned (the principal) in 1 year, 5 years, 10 years, etc. Since prices fall in a deflationary environment, that money you get back is worth more at the end of the term than when it was loaned in the beginning. Coupled with whatever interest you earned over the period, it becomes better than just holding cash.
Connections
Link Explanation: The note linked above provides a detailed checklist that an investor can follow in order to obtain a sense of what stage the capital cycle is in and where it may be going. Since an investors portfolio and asset allocations should look different depending on the stage of the market cycle, understanding the role that bonds play in a portfolio is a necessary requirement for proper positioning.
Reference
The Simple Path to Wealth Your Road Map to Financial Independence and a Rich, Free Life