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

The type of bond that is supported by the full faith and credit of the government is a general obligation bond. These bonds are issued by state and local governments to fund public projects, and they are backed by the issuer's ability to tax its residents. This means that the government is committed to using its revenues, such as taxes, to ensure that bondholders are repaid. The "full faith and credit" aspect indicates a high level of trust from investors because the government has the authority to levy taxes to fulfill its obligations.

In contrast, revenue bonds are secured by specific revenue sources, such as fees generated by the projects they finance, rather than being backed by the government's taxing power. Grants are typically funds given by an entity to support a project without the expectation of repayment, while capital market securities encompass a broader range of financial instruments that do not necessarily involve the backing of government credit. Understanding the distinction between these types of financial instruments is essential in recognizing how they operate within the governmental finance framework.