Municipal bonds backed by the taxing power of the issuer are referred to as?

Municipal bonds backed by the taxing power of the issuer are known as general obligation bonds. These bonds are issued by municipalities and are secured by the full faith and credit of the issuing government entity. This means that the issuer has the authority to levy taxes to make interest and principal payments to bondholders.

General obligation bonds are typically issued for public projects such as schools, parks, and infrastructure improvements, where the community benefits from the funding. The tax revenue collected can be used to pay off the bondholders, providing a level of security for investors.

In contrast, revenue bonds are backed by specific revenue sources, such as tolls or fees from a particular project, rather than the general taxing power of the municipality. Private activity bonds are issued to fund projects that benefit private entities and often have different tax implications. Tax-exempt bonds are a broader category that includes various types of municipal bonds, including both general obligation and revenue bonds, that do not pay federal taxes on interest income.

Understanding these distinctions is crucial for investors looking to assess the risk and return profile of different types of municipal bonds.