Start your free trial today and get unlimited access to America's largest dictionary, with:
- More than 250,000 words that aren't in our free dictionary
- Expanded definitions, etymologies, and usage notes
- Advanced search features
- Ad free!
Financial Definition of GENERAL OBLIGATION BOND
What It Is
How It Works
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 It Matters
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.
Seen and Heard
What made you want to look up general obligation bond? Please tell us where you read or heard it (including the quote, if possible).