Cannon Certified Trust And Fiduciary Advisor (CTFA) Practice Test

When evaluating municipal bonds, the key factor is what backing the issuer provides for debt service. A general obligation bond is backed by the issuer’s full faith and credit, meaning the municipality pledges its taxing power and other available funds to pay interest and principal. This makes it a tax-supported obligation and generally considered safer because repayment isn’t limited to a specific project’s revenues. In contrast, revenue bonds are repaid from a dedicated stream of income—such as tolls, charges, or utility revenues—so they don’t rely on tax revenue or the issuer’s broader taxing power. Mortgage bonds are secured by a mortgage on real property, tying repayment to asset value rather than the issuer’s ability to tax. Debentures are unsecured and rely on the issuer’s credit without specific assets backing the debt. Therefore, the bond backed by the full faith and credit of the municipality is the general obligation bond.