4.1. Types of Municipal Bonds

Municipal bonds come in two basic types: general obligation bonds and revenue bonds. The two types are distinguished by how they are funded.

Revenue bonds are secured bonds, meaning that they are collateralized by an asset of the issuer. Should the issuer default on its payments, the investors in a secured bond have a claim on its assets, which they can use to recover their investments. Revenue bonds generally finance specific projects and are funded by the revenue stream generated by the project.

General obligation (GO) bonds are unsecured bonds. While they have no claim on any specific collateral, they are considered very safe because they are funded by taxpayers and backed by the full faith and credit of the municipality. This means that the municipality has guaranteed payment of the bonds,