What is a General Obligation Bond?
A general obligation bond is a municipal debt issue that is secured by a broad government pledge to use its tax revenues to repay the bond holders.
How Does a General Obligation Bond Work?
General obligation debt issued by local governments generally requires a pledge of full faith and credit of the local government. Since a local government's credit is based on tax receipts, it is pledging the receipt of taxes and its ability to levy those taxes in support of the debt. Local governments are able to secure the receipt of taxes through priority liens on property. As a result, general obligation bonds, supported by the taxing and lien powers, carry the credit rating of the local government.
General obligations bond usually carry a lower interest rate because of the lower risk of default. As a result, the debt is less expensive to local governments. However, general obligation bonds are considered a liability on a local government's balance sheet.
Why Does a General Obligation Bond Matter?
General obligations bonds are usually a safe investment because of the pledge of the local government's taxing authority. For the investor, however, it is important to know the extent of the general obligation debts outstanding and the track record of the taxing authority in collecting taxes, executing liens, and paying its bond holders.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
What Is a Stop-Loss Order? A stop-loss (also called a...
Read More →
Between real estate, groceries, and any other consumer goods, the cost of living has been steadily rising for years. Inflation is an unfortunate reality, and while the current inflation rate isn’t...
Read More →
"Price is what you pay. Value is what you get." -- Warren Buffett Putting his finger on this difference between price and value in ...
Read More →
History has shown that gold has been sensitive, whether that comes from inflation, production, or...
Read More →
There aren't many things you can buy that automatically give you your money back. Think about it: When was the last time your car wrote you a check? Has...
Read More →
