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 Bank

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

    A type of municipal agreement that pays holders based on revenues ...
  3. General Obligation Bond - GO

    A municipal bond backed by the credit and "taxing power" of the ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Bonds & Fixed Income

    The Basics Of Municipal Bonds

  3. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond ...

  4. Retirement

    Bond Basics Tutorial

Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  5. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  6. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
Trading Center