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General Obligation Bond

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A general obligation bond is a municipal bond backed by the taxing and revenue power of the issuing municipality. For this reason a general obligation bond is sometimes referred to as a full-faith-and-credit bond. Because a general obligation bond is backed by the taxing power of a municipality, it is generally considered to be of higher quality (less risky) than a bond issued for a particular project. For this reason a general obligation bond often has a lower rate of return than a more risky bond. In most cases the interest received from a general obligation bond is free from federal income tax and if the general obligation bond is purchased in the state in which it is issued it is also free from local taxation. This double-tax-free status also makes a general obligation bond a desirable instrument for investors. A general obligation bond is sometimes referred to as a "muni."



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