Moral Obligation Debt

moral obligation debt

Government or municipal debt that carries an implied pledge of support but that is not explicitly guaranteed by the full faith and credit of the guarantor organization. Moral obligation debt is generally issued in order to circumvent legal restrictions on borrowing. The securities are rated lower and carry higher yields than general obligation bonds of the same issuer.

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Moral Obligation Debt

A municipal bond or another government bond that is not secured by the full faith and credit of the issuer. Unlike general obligation bonds, which are secured in this way, moral obligation bonds carry higher risk and, therefore, a higher yield. However, because they are still government bonds, their interest is usually deductible from federal income taxes.