Which type of bond is considered riskier than general obligation bonds?

Revenue bonds are considered riskier than general obligation bonds because they are backed by the earnings generated from specific projects or revenue sources, rather than the full faith and credit of the issuing government. This means that if the project financed by the revenue bond does not generate sufficient revenue, bondholders may face the risk of not receiving their interest payments or principal. In contrast, general obligation bonds are supported by the taxing power of the issuing entity, which provides a stronger guarantee for repayment.

Revenue bonds often fund initiatives such as toll roads, bridges, or public utility projects, which may have variable income based on usage or economic conditions. This inherent variability in revenue can lead to higher risk, especially in times of economic downturns or if the project fails to attract users. As a result, investors typically demand higher yields on revenue bonds compared to general obligation bonds to compensate for the additional risk.