What backs general obligation bonds?

General obligation bonds are backed by the full faith and credit of the government issuing them. This means that the government pledges its taxing power to ensure repayment of the bondholders, thereby affirming its obligation to service the debt. This backing can include the ability to levy taxes or utilize other revenue sources to meet the debt obligations.

In the context of governmental finance, general obligation bonds are often used to fund public projects such as schools, parks, or infrastructure improvements. Since these bonds do not rely on a specific source of revenue for their repayment, they are generally considered less risky than revenue bonds, which are tied to specific project earnings. Therefore, the strength of these bonds lies in the government's overall financial stability and commitment to meet its obligations, ensuring investors that they will be repaid regardless of the individual project's success.