Unlimited Tax Bond

AAA

DEFINITION of 'Unlimited Tax Bond'

A municipal bond that is backed by the pledge of the issuer (generally a city or municipality) to raise taxes, without limit, to service the debt until it is repaid. Because of this feature, unlimited tax bonds may have higher credit ratings and offer lower yields than other comparable municipal bonds of the same maturity.

INVESTOPEDIA EXPLAINS 'Unlimited Tax Bond'

While the issuer of unlimited tax bonds in theory can raise taxes at an unlimited rate, in practice it may be difficult to raise taxes beyond a certain point. One of the factors that credit analysts use to rate such bonds is the ability of the issuer to enforce penalties against and recover taxes from delinquent taxpayers.

RELATED TERMS
  1. Maintenance Bond

    A type of surety bond purchased by a contractor that protects ...
  2. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  3. Tax-Exempt Security

    A security in which the income produced is free from federal, ...
  4. Bond Laddering

    A portfolio management strategy and model for investing in fixed ...
  5. Tax-Equivalent Yield

    The pretax yield that a taxable bond needs to possess for its ...
  6. Municipal Bond

    A debt security issued by a state, municipality or county to ...
RELATED FAQS
  1. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Full Answer >>
  2. What are the advantages of using an effective interest rate figure?

    The primary advantage of using the effective interest rate figure is simply that it is a more accurate figure of actual interest ... Read Full Answer >>
  3. What are the pros and cons of operating on a balanced-budget?

    Few issues are more complicated, contentious and controversial in contemporary American politics than balancing the federal ... Read Full Answer >>
  4. What are the risks associated with investing in a treasury bond?

    It's common for financial analysts and investment publications to refer to U.S. Treasury bonds (T-bonds) as risk-free investments. ... Read Full Answer >>
  5. How is it possible for a rate to be entirely risk-free?

    It is not possible for a rate to be entirely risk-free. The risk-free rate of return is a theoretical construct that underlies ... Read Full Answer >>
  6. How is the risk-free rate of interest used to calculate other types of interest rates ...

    The risk-free rate for bonds is used for pricing the yield spread as the difference between the interest rate on a bond and ... Read Full Answer >>
Related Articles
  1. 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.
  2. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  3. Options & Futures

    Top 4 Strategies For Managing A Bond Portfolio

    Find out how these strategies work and how you can put them to work for you.
  4. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  5. Bonds & Fixed Income

    African Sovereign Debt: Risks and Rewards

    African sovereign debt offers high yields and upside — if one has the stomach for the risk.
  6. Economics

    A Risky Maneuver To Jumpstart Japan's Economy

    Japan's government and the Bank of Japan are buying large amounts of government bonds in an effort to spark economic activity, but there are great risks.
  7. Investing Basics

    CDs or Bonds: Which Investment is Better For You

    When choosing between CDs and bonds, investors who seek to maximize their returns but also want a large measure of safety should consider the following:
  8. Bonds & Fixed Income

    Interested In West African Debt? Look Here First

    Promising high yields that the Eurozone and U.S. can't match, West African sovereign debt has caught the attention of savvy investors.
  9. Taxes

    10 Sources Of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
  10. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center