General Obligation Bonds
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General Obligation Bonds
The two main forms of municipal bonds are general obligation bonds and revenue bonds.
Things To Know
- GO bonds finance projects that do not produce revenue.
These two types are distinguished according to whether they are secured or unsecured. To be secured is to be backed by collateral. The bond issuer must give this collateral—money or physical assets—to investors if the secured bond defaults. Unsecured bonds are not backed by collateral. Instead of securing them with some kind of collateral, the issuer "backs" them with its creditworthiness.
How they work
General obligation bonds (GO bonds) are unsecured municipal bonds that finance municipal operations.
GO bonds have maturities of 10 years or more. The creditworthiness of the issuing city or state is the only "security" they provide. GO bonds finance projects that do not produce revenue.
The municipal issuer repays the bonds with funds raised by fees or property sales. If it is unable to, it may turn to taxation to guarantee interest and principal payments.
Generally, all the individual bonds in a GO bond issue have the same maturity date.
