What type of bond involves issuing new bonds to repay old debt?

The concept of refunding bonds is specifically designed to manage existing debt by issuing new bonds to pay off old ones. This financial strategy allows municipalities to take advantage of lower interest rates or to restructure the terms of their debt for better cash flow management. When a municipality issues refunding bonds, it typically aims to reduce the overall cost of borrowing or to extend the maturity of the debt, thereby freeing up funds for other uses.

This type of bond is distinct from tax-exempt bonds, which provide tax benefits but are not necessarily linked to repaying old debt. Revenue bonds are secured by specific revenue sources and also do not inherently involve the process of refinancing existing obligations. General obligation bonds are backed by the full faith and credit of the issuing municipality, primarily used for public projects, without the specific goal of refunding existing debt.

Therefore, refunding bonds serve a unique purpose in the management of municipal finance by strategically addressing outstanding obligations through the issuance of new debt.