Moral Obligation Bond

Moral Obligation Bond

A type of revenue bond, issued by a municipality or similar government body, which not only gives investors the tax exemption benefits inherent in a municipal bond but also provides an additional moral pledge of commitment against default. The issuing body's commitment is supported via a reserve fund established to meet any debt service costs the government may be unable to make.

Notes:

It is important to note that with a moral obligation bond the additional security provided by the government is not legally binding (it is only morally binding). However, the pledge is generally regarded as being as credible as a legally binding promise, since the issuing government would face negative credit rating effects should it not honor the pledge.

See also: Credit Rating, Default, Municipal Bond, Municipal Bond Fund, Obligation Bond, Revenue Bond

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Moral obligation bond

A tax-exempt bond issued by a municipality or a state financial intermediary that is backed by the moral, but not legal, obligation of a state government to appropriate funds in case of default .