Unlimited Tax Bond

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.

BREAKING DOWN '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. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  4. Tax-Equivalent Yield

    The pretax yield that a taxable bond needs to possess for its ...
  5. Tax-Exempt Security

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

    A portfolio management strategy and model for investing in fixed ...
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. Bonds & Fixed Income

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  5. Term

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  6. Bonds & Fixed Income

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  7. Mutual Funds & ETFs

    The Top 5 Bond Mutual Funds for 2016

    Learn about bond mutual funds that investors may want to consider for 2016. Understand why the risk of rising interest rates is a concern heading into 2016.
  8. Investing

    Where Investors Have Turned Optimistic

    The old adage “familiarity breeds contempt” helps explain the “love-hate” relationship most investors have with their home market. Here, a few examples.
  9. Mutual Funds & ETFs

    BND: Vanguard Total Bond Market ETF

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  10. Mutual Funds & ETFs

    TLH: iShares 10-20 Year Treasury Bond ETF

    Learn about the iShares 1-20 Year Treasury Bond ETF and its holdings, and understand why investors may be better served to look at other bond funds.
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. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  3. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  4. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  5. How stable are municipal bonds?

    Stability is relative in the municipal bond market. Municipal bonds tend to be safer than many other types of investments, ... Read Full Answer >>
  6. What do cities do with the funds generated from municipal bonds?

    Funds generated from the sale of municipal bonds may go to provide for unspecified, general government financial needs, or ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center