Revenue Bond

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Definition of 'Revenue Bond'

A revenue bond is a type of municipal bond that is backed by the revenue generated by a specific project or asset. The project or asset that the bond is backed by is typically a public improvement, such as a toll road, bridge, or sewer system. The revenue from the project or asset is used to pay back the bondholders.

Revenue bonds are often used to finance projects that would not be feasible if they were financed with general obligation bonds. This is because general obligation bonds are backed by the full faith and credit of the issuing municipality, which means that the municipality is obligated to repay the bondholders even if it does not have the money to do so. Revenue bonds, on the other hand, are only backed by the revenue generated by the project or asset, so if the project or asset does not generate enough revenue, the bondholders may not be repaid.

Because revenue bonds are not backed by the full faith and credit of the issuing municipality, they are considered to be riskier than general obligation bonds. As a result, they typically have higher interest rates. However, revenue bonds can also be more attractive to investors because they offer the potential for higher returns.

There are a number of factors that investors should consider when evaluating revenue bonds. These factors include the creditworthiness of the issuing municipality, the projected revenue from the project or asset, and the interest rate on the bond. Investors should also be aware of the risks associated with revenue bonds, such as the possibility that the project or asset may not generate enough revenue to repay the bondholders.

Revenue bonds can be a good investment for investors who are looking for higher returns than what is available with general obligation bonds. However, investors should carefully evaluate the risks associated with revenue bonds before investing.

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