Moral Obligation Bond


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.

BREAKING DOWN '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.

  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. Default

    1. The failure to promptly pay interest or principal when due. ...
  5. Municipal Bond

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

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