Which of the following is true about general obligation bonds?

General obligation bonds are unique financial instruments commonly used by governments to raise funds for various public projects. The key aspect of these bonds is that they are backed by the full faith and credit of the issuing government, which relies on its taxing power. This means that the government commits to using its tax revenues to ensure the repayment of the bondholders, which inherently ties the bond's security to the creditworthiness of the issuing government.

The reliance on the government’s credit does indicate that the perceived financial stability and management of that government will influence their ability to honor these financial commitments. A higher credit rating can lead to lower interest rates on the bonds, making them a more attractive option for both the government and the investors.

This characteristic fundamentally sets general obligation bonds apart from revenue bonds, which are secured by the revenues generated from specific projects rather than the government's overall taxing power. Consequently, the creditworthiness of the issuing government plays a critical role in determining the viability and attractiveness of general obligation bonds to investors.

Understanding this distinction is vital for comprehending how different types of bonds function and how they are perceived in the financial markets.