Investment Opportunities in Revenue Bonds

Abstract

eral obligation and revenue tax-exempt bonds is a situation which often presents the investor with attractive investment opportunities. The basic reason for this differential exists in the generally greater degree of safety of a bond backed by taxing power. Something has been said to the effect that there is nothing so certain as death and taxes. This certainty of taxes assures, in most cases, the safety of the general obligation bond. Municipal taxes rank close to being of top priority in expenses that must be met by a business or homeowner. If taxes are not paid, their property can be sold by the municipality. Also, in most cases, they will suffer a good-sized tax increase before thinking about moving elsewhere. Consequently, it seems entirely proper that a bond backed by the full faith and credit of a city should yield less than a bond backed only by revenues from a certain operation. There is less certainty, however, as to whether the amount of the yield spread between certain general obligation and revenue bonds is fully justified.