Moral Obligation Bond

February 1, 2014

A type of tax free revenue bond where government is not legally obligated to appropriate funds to pay a bond debt, but has great incentive to do so in order to avoid a default. For example, a housing authority may issue debt for a project but because property values fall, the projected revenue stream is not enough to make its payments to bond holders. In order to keep its good standing on Wall Street and low borrowing costs, the government overseeing such a housing authority is obligated to cover the debt payments through other funding mechanisms.

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