What Are Construction Bonds?

What are Construction Bonds?  Construction bonds are bonds issued by a government entity, typically a local government, in an effort to raise capital for a public works construction project.  A perfect example of this would be a construction bond issued by a municipal government, local city government, to fund the construction of a regional airport.  While the city government may not have the money in the coffers to take on a project of this scale, they often look to private bond investors to pick up the tab.  The city knows the airport will bring in revenue to the local government once completed, so they can risk borrowing the capital to get the project done.  In this example an investor would purchases a contraction bond to be applied to the construction of the public airport.  Government bonds have a coupon interest rate as well as full repayment of the loan amount once the bond reaches maturity.  In the airport example the bond would be paid back at a time in the future when the issuing entity feels the revenue from the completed project will begin to come in.  While not all construction bonds are for projects on such as scale as an airport, the same characteristics will always hold true.

Government Construction Bond FAQ

With government bonds there is always more than meets the eyes in terms of the potential benefits.  Unlike privately issued corporate bonds, government bonds, construction bonds included, do not require their investors to pay federal tax on their accrued interest.  Additionally many of these bonds are not even taxed at the state level.  For this reason when comparing the value in government bonds to other bond types, the interest paid out in the form of the coupon amount should be calculated for tax.  A corporate bond will always advertise a higher interest amount, but once you deduct for taxes the interest amounts will usually even out.  Once more with government bonds one enjoys the peace of mind which comes with knowing their money is backed for repayment by the US Government.

Related posts:

1. What Is A Municipal Bond?
2. What Are Tax Free Bonds?
3. What Are Bonds Investments?
4. What Is The Bond Rate?
5. What Is A Municipal Bond?