Which type of bond is backed by the full faith and credit of the government?

General obligation bonds are a type of municipal bond that is backed by the full faith and credit of the issuing government, typically a state or local entity. This means that the government has pledged to use its taxing power to ensure that the bondholders are paid. The strength of these bonds comes from the government’s ability to raise taxes or generate revenue through various means, providing a strong guarantee to investors.

These bonds are often used to fund public projects such as schools, parks, and other infrastructure developments that benefit the community. The backing by the issuer’s creditworthiness gives investors confidence in the safety of their investment since there is a legal obligation for the government to repay the debt.

In contrast, revenue bonds are secured by specific revenue sources, such as tolls from a toll road or earnings from a public utility, which does not imply the same level of credit backing as general obligation bonds. Commercial paper is typically short-term financing for businesses and not a governmental bond. Zero coupon bonds, meanwhile, do not pay interest periodically but are issued at a discount and redeemable at face value, functioning differently from the traditional municipal bonds.