Municipal bonds backed by the taxing power and the full faith and credit of the issuer are known as what?

Municipal bonds backed by the taxing power and the full faith and credit of the issuer are known as what?

• A. Revenue Bonds
• B. General Obligation Bonds
• C. Moral Obligation Bonds
• D. Special Assessment Bonds

Answer: (B)

Municipal bonds that are backed by the taxing power and the full faith and credit of the issuer are classified as general obligation bonds. These bonds are typically issued by municipalities and state governments to fund various projects, such as schools, highways, and infrastructure improvements. What sets general obligation bonds apart is that they are secured by the issuer's ability to levy taxes and generate revenue through taxation. Because general obligation bonds rely on the creditworthiness of the issuer—which includes their ability to tax residents—investors often view them as lower risk compared to revenue bonds, which are dependent on specific revenue streams generated by projects. This backing makes general obligation bonds attractive to conservative investors seeking stable and predictable returns. Understanding the distinction between these types of bonds is essential for evaluating risk and investment potential within the municipal bond market.

Municipal bonds that are backed by the taxing power and the full faith and credit of the issuer are classified as general obligation bonds. These bonds are typically issued by municipalities and state governments to fund various projects, such as schools, highways, and infrastructure improvements. What sets general obligation bonds apart is that they are secured by the issuer's ability to levy taxes and generate revenue through taxation.

Because general obligation bonds rely on the creditworthiness of the issuer—which includes their ability to tax residents—investors often view them as lower risk compared to revenue bonds, which are dependent on specific revenue streams generated by projects. This backing makes general obligation bonds attractive to conservative investors seeking stable and predictable returns.

Understanding the distinction between these types of bonds is essential for evaluating risk and investment potential within the municipal bond market.