Moral Obligation Bond

AAA

DEFINITION of 'Moral Obligation Bond'

A type of revenue bond issued by a municipality or similar government body. A moral obligation bond not only gives investors the tax exemption benefits inherent in a municipal bond, but also provides an additional moral pledge of commitment against default. The issuing body's commitment is supported by a reserve fund established to meet any debt service costs the government may be unable to make.

INVESTOPEDIA EXPLAINS 'Moral Obligation Bond'

It is important to note that with a moral obligation bond, the additional security provided by the government is only morally - and not legally - binding. However, the pledge is generally regarded as being as credible as a legally binding promise because the issuing government would face negative credit rating effects if it failed to honor the pledge.

RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Restricted Asset

    Money or other items of value received by or promised to an organization, ...
  3. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  4. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  5. Revenue Bond

    A municipal bond supported by the revenue from a specific project, ...
  6. Obligation Bond

    A municipal bond used to secure a mortgage on property or other ...
Related Articles
  1. The Basics Of Municipal Bonds
    Bonds & Fixed Income

    The Basics Of Municipal Bonds

  2. Weighing The Tax Benefits Of Municipal ...
    Taxes

    Weighing The Tax Benefits Of Municipal ...

  3. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

  4. Understanding The Bond Behemoth That ...
    Mutual Funds & ETFs

    Understanding The Bond Behemoth That ...

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center