What are general obligation bonds primarily backed by?

General obligation bonds are primarily backed by the full faith and credit of a government entity, such as a city, county, or state. This means that the issuing government pledges its resources, including tax revenue, to ensure repayment of the bondholders. The assurance provided by this backing allows these bonds to generally offer lower interest rates compared to revenue bonds, which rely on specific revenue streams.

The concept of 'full faith and credit' indicates that the government can levy taxes, receive income from various sources, and utilize public assets to fulfill its debt obligations. Investors are attracted to general obligation bonds due to the perceived safety associated with this backing, which is reflective of the government’s commitment to honor its financial liabilities.

In contrast, property taxes from land sales, commercial mortgage insurance, and private fundraising initiatives do not provide the comprehensive and guaranteed support that general obligation bonds rely upon. Each of those alternatives has its own specific mechanisms and limitations that do not encompass the broad financial mechanisms that underlie general obligation bonds.