Define: Full-Faith-And-Credit Bond

A Full-Faith-And-Credit Bond is a type of municipal bond that is backed by the full faith and credit of the issuing government entity, typically a state or local government. This means that the government entity pledges its taxing power and general revenues to repay the bondholders.

When a government issues a Full-Faith-And-Credit Bond, it promises to repay the bondholders using its general revenues, which can include taxes, fees, and other sources of income. This provides a high level of security to the bondholders, as the government entity is legally obligated to repay the bond.

Full-Faith-And-Credit Bonds are generally considered safe investments because they are backed by the full faith and credit of the issuing government entity. However, the safety of these bonds can vary depending on the financial health and creditworthiness of the government entity.

While it is rare for Full-Faith-And-Credit Bonds to default, it is not impossible. If a government entity faces severe financial distress or bankruptcy, it may be unable to fulfill its obligations to repay the bondholders. However, such instances are infrequent and usually occur in extreme circumstances.

Full-Faith-And-Credit Bonds differ from other types of municipal bonds in that they are backed by the full faith and credit of the issuing government entity. Other types of municipal bonds may be backed by specific revenue streams, such as tolls or utility fees, which may not provide the same level of security.

Yes, individuals can invest in Full-Faith-And-Credit Bonds. These bonds are typically available for purchase through brokerage firms, financial institutions, or directly from the issuing government entity.

The taxability of Full-Faith-And-Credit Bonds depends on the specific bond and the tax laws of the jurisdiction in which it is issued. Some Full-Faith-And-Credit Bonds may be exempt from federal income tax, while others may be subject to both federal and state income tax.

Credit rating agencies, such as Standard & Poor’s, Moody’s, and Fitch, provide credit ratings for government entities issuing bonds. These ratings assess the creditworthiness and likelihood of default for the bonds. Investors can use these ratings as a guide to evaluate the risk associated with investing in Full-Faith-And-Credit Bonds.

Yes, Full-Faith-And-Credit Bonds can be sold before their maturity date. Investors can sell their bonds on the secondary market, where the price may be influenced by various factors such as interest rates, market conditions, and the creditworthiness of the issuing government entity.

If a government entity defaults on Full-Faith-And-Credit Bonds, it may result in legal action by the bondholders. Bondholders may seek remedies such as suing the government entity for repayment or negotiating a restructuring of the debt. The specific actions and outcomes will depend on the laws and regulations governing the bond issuance and the jurisdiction in which it occurs.