Authority bond 

Authority bond 

Authority bonds are considered a safe investment option for investors as the taxing power of the issuing agency generally backs them. The interest incurred on these bonds is usually exempt from federal and state taxes. Authority bonds are an attractive investment option for investors who are willing to take risk in exchange for higher returns. However, it is crucial to carefully consider the risks and benefits before investing in any bond. 

What is an authority bond? 

An authority issues a debt security known as an authority bond to fund its commitments and expenses. Periodic interest payments on authority bonds are known as coupon payments. Since the issuing government backs these bonds, they are frequently regarded as low-risk investments. These bonds are typically backed by the creditworthiness of the issuing agency rather than by a specific source of revenue. Local authority bonds are another name for authority bonds. 

Understanding an authority bond 

Authority bonds are purchased by investors for a predetermined period, allowing the financed project to be finished and start generating money. Following this period, the bond will start paying interest at a predetermined rate. Holders of authority bonds are entitled to a portion of the company’s earnings, which is the bond’s yield. (Yield is the term used to describe the profits produced and released on an investment over a specific time period.) 

 Municipal bonds and authority bonds are somewhat similar to each other. Affiliated organisations issue these two kinds of bonds for the same objectives. Although the projects they support have similarities, there are also significant distinctions.  

Importance of an authority bond 

Authority bonds serve as an important tool for governments to finance public projects that benefit society as a whole. In general, authority bonds are low-risk investments, although this depends on the issuer. An authority bond’s risk is inversely correlated with the risk of the project it finances. The authority bond is backed by the full faith and credit of the issuing authority, which means that investors can be confident that they will receive their principal and interest payments on time. 

One advantage of investing in authority bonds is that they generally offer a higher rate of return than other types of bonds as they are considered to be riskier investments than government bonds, but they still offer a level of safety that is attractive to many investors. Additionally, authority bonds are often exempt from state and local taxes, which can make them even more attractive to investors in high-tax states. 

However, there are also risks associated with investing in authority bonds. For example, if the issuing authority experiences financial difficulties or default on their payments, investors could lose some or all of their investment. Additionally, changes in interest rates or the economy may lead to changes in the value of authority bonds. 

Investing in an authority bond 

By purchasing an authority bond, you consent to lend the government the specified amount for a certain time. In exchange, the government will issue you a coupon, or a specified amount of interest, at regular intervals. Bonds are fixed-income assets as a result. 

Your initial investment, known as the principal, will be repaid to you when the bond matures. The maturity date is the day when you get the principal. You may purchase a bond that matures in less than a year or 30 years or more. Varied bonds will have various maturity dates. 

Examples of an authority bond 

The US Treasury offers plenty of bond types with a range of maturities. Additionally, while some bonds pay interest regularly, others do not. The notional value of outstanding government bonds makes up a major portion of the national debt in the United States. The public holds most of the national debt or around US$24.2 trillion. As of Q3 2022, there were roughly US$6.6 trillion US$ in intragovernmental holdings, making the total amount of debt around US$30.9 trillion. 

Frequently Asked Questions

Local authority bonds are a type of revenue bonds. As a result, revenue bonds used to fund projects that generate income are guaranteed by a specific revenue source. Typically, any government organisation or fund operating like a company, such as one with operating income and costs, may issue revenue bonds. 

The interest rate on local authority bonds is typically higher than government bonds, as they are considered riskier investments due to the potential for default. However, the credit ratings of these bonds are generally high, making them a popular choice for investors.  

Local and state governments issue municipal bonds to finance general operations, such as building schools or funding public projects. In contrast, authority bonds are usually offered for business expansions or community organisations.  

Municipal bonds are backed by the full faith and credit of the government entity issuing them. As a result, municipal bonds are generally considered to be safer investments than authority bonds.  

The primary difference between them is the source of payment for the bond. General obligation bonds are backed by the full faith and credit of the issuing government, meaning that the government pledges to pay back the bondholders using any available resources, including taxes. In contrast, authority bonds are typically issued for business expansions.  

In the United States, investors can choose from several types of bonds.  

  • Treasury bonds, also known as T-bonds, are issued by the US government and are considered the safest investment option.  
  • Municipal bonds, or munis, are issued by local governments and are generally tax-free.  
  • Companies issue corporate bonds that can offer higher yields but carry more risk.  
  • There are also high-yield bonds, also known as junk bonds, which are issued by companies with low credit ratings and offer the highest potential returns but are also the riskiest.  


    Read the Latest Market Journal

    Unlocking Stock Market Potential with AI

    Published on May 24, 2024 48 

    Introduction of AI In the world we live in today, artificial intelligence (AI) is almost...

    Financial Sectors Thriving: Top Traded Counters in April 2024

    Published on May 21, 2024 80 

    At a glance: The Federal Reserve (Fed) held interest rates steady at 5.25% to 5.5%...

    One Dollar at a Time: The Potential of Fractional Shares

    Published on May 20, 2024 75 

    Table of contents 1. Introduction 2. Dollar-Cost Averaging 3. Popularity of Dollar-Cost Averaging 4. Small...

    Unit Trusts vs Exchange Traded Funds (ETFs) – Which is better for your portfolio?

    Published on May 20, 2024 78 

    Imagine you are dining at a nice restaurant, feeling overwhelmed by the variety of seemingly...

    Weekly Updates 20/5/24 – 24/5/24

    Published on May 20, 2024 21 

    This weekly update is designed to help you stay informed and relate economic and company...

    What is CFD? With 2 Practical Examples

    Published on May 15, 2024 105 

    In this article, you will learn what CFD (Contract for Difference) is, the costs and...

    What is ESG investing, and why is it important?

    Published on May 15, 2024 110 

    Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being...

    What are fixed-income funds?

    Published on May 15, 2024 62 

    In the diverse world of unit trusts, various funds employ distinct investment strategies aligned with...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066