General obligation (GO) bonds

Definition

General obligation (GO) bonds are municipal bonds backed by the full faith and credit of the issuing government entity. These bonds are typically supported by the issuer's taxing power rather than revenue from a specific project.

5 Must Know Facts For Your Next Test

1. GO bonds are considered low-risk investments because they are supported by the taxing authority of the issuer.
2. The repayment of GO bonds relies on tax revenues, making them distinct from revenue bonds, which depend on specific project revenues.
3. Interest income from GO bonds is often exempt from federal income tax and sometimes state and local taxes.
4. GO bonds can be issued by various governmental entities, including cities, counties, and school districts.
5. Credit ratings for GO bonds depend heavily on the financial stability and creditworthiness of the issuing government.

Review Questions

• What distinguishes general obligation (GO) bonds from revenue bonds?
• Why are GO bonds generally considered low-risk investments?
• How does the issuance of GO bonds impact a government's credit rating?

Related terms

Revenue Bonds: Municipal bonds that finance income-producing projects and are secured by the revenue generated by those projects.

Municipal Bonds: Debt securities issued by states, municipalities, or counties to finance public projects.

Credit Rating: An evaluation of a borrower's ability to repay debt, often influencing interest rates for bond issuers.