General obligation bond - Financial definition
Country
: United States of America
Concise definition of the term general obligation bond
A general obligation bond is a type of municipal bond backed by the full faith and credit of the issuing government entity, which pledges its taxing power to repay the bondholders. These bonds are used to finance public projects like schools, roads, and infrastructure.
Comprehensive definition of the term general obligation bond
General obligation bonds are a key instrument in municipal finance, often used by local governments to fund essential community projects that benefit the public, such as building schools, improving transportation systems, and upgrading public utilities. Unlike revenue bonds, which are repaid from the income generated by the specific project they finance, general obligation bonds are secured by the issuer's ability to levy taxes, typically property taxes, ensuring a higher level of security for investors.
These bonds usually require voter approval and are considered relatively low-risk investments, attracting a broad range of institutional and individual investors looking for stable returns. For example, a city might issue a general obligation bond to finance the construction of a new public library, promising to repay bondholders through its general tax revenues.