Revenue Bond

AAA

DEFINITION of 'Revenue Bond'

A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source.

Typically, revenue bonds can be issued by any government agency or fund that is run in the manner of a business - those entities having both operating revenues and expenses. Revenue bonds differ from general obligation bonds (GO bonds) that can be repaid through a variety of tax sources. Also called a municipal revenue bond.

INVESTOPEDIA EXPLAINS 'Revenue Bond'

For example, if a revenue bond is issued to build a new toll road, the tolls that are collected from motorists who drive on the road would be used to pay off the bond (after the building expenses had been paid). A primary reason for using revenue bonds is that they allow the municipality to avoid reaching legislated debt limits. An agency that is run solely on tax dollars, such as a public school, cannot issue revenue bonds, since these entities would be unable to pay off the bond using revenues from the specific project.


Generally, revenue bonds mature in 20 to 30 years and are issued in $5,000 units. Some revenue bonds have staggered maturity dates and do not mature at the same time (these are known as serial bonds). Unlike general obligation bonds, which are backed by the full faith and credit of the municipality, revenue bonds carry a higher risk of default.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Bond Bank

    A state-level entity that provides that state's smaller public ...
  3. Mortgage-Backed Revenue Bond

    A type of municipal agreement that pays holders based on revenues ...
  4. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  5. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  6. Default Risk

    The event in which companies or individuals will be unable to ...
RELATED FAQS
  1. How can I create a yield curve in Excel?

    You can create a yield curve in Microsoft Excel if you are given the time to maturities of bonds and their respective yields ... Read Full Answer >>
  2. What are the different formations of yield curves?

    There are three main different formations of yield curves: normal, inverted and flat yield curves. The yield curve describes ... Read Full Answer >>
  3. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
  4. On what basis does the sustainable growth rate fluctuate?

    The main difference between a bond’s yield to maturity, or YTM, and the spot rate is that the YTM uses the same interest ... Read Full Answer >>
  5. What are some classes I can take to prepare for the Series 6 exam?

    The risk-return tradeoff for bonds is the increased yield investors can obtain from corporate and other types of bonds that ... Read Full Answer >>
  6. What level of return on equity is average for companies in the chemicals sector?

    The modified duration is an adjusted version of the Macaulay duration and takes into account how interest rate fluctuations ... Read Full Answer >>
Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  2. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  3. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  6. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  7. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  8. Mutual Funds & ETFs

    How To Short The U.S. Bond Market

    The U.S. bond market has enjoyed a strong bull run over the past few years as the Federal Reserve has lowered interest rates to historic low levels.
  9. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  10. Mutual Funds & ETFs

    The EMAG Emerging Mkts Bond ETF: Worth the Risk?

    The Market Vectors Emerging Markets Aggregate Bond ETF (EMAG) might offer long-term rewards, but is now the best time to jump in?

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center