Auction Rate Securities
Auction rate securities are long-term bonds or preferred shares whose rates reset through auctions, with liquidity depending on successful bids or a secondary sale.
Variable-rate securities and municipal demand obligations with benchmark resets, tender features, remarketing, and liquidity-support mechanics.
Variable-rate securities pay interest that changes under a benchmark, formula, auction, or remarketing process. A variable-rate demand obligation adds a holder put or tender right, while an auction rate security depends on successful bids rather than the same standing put mechanism. These structures can have short-rate behavior, but the documents control their maturity, liquidity, credit support, and investor rights.
Use Variable-Rate Security for the broad category, including variable-rate bond terminology and the differences among benchmark, auction, and remarketing resets. Use Variable-Rate Demand Obligation for VRDO, VRDN, or VRDB terminology and the associated tender process. Use Auction Rate Securities to understand clearing rates, all-hold rates, failed auctions, and why a short reset interval does not create short maturity.
For ordinary benchmark-plus-spread debt without a demand feature, start with Floating-Rate Note. For issuer and tax context, use Municipal Bond.
| Structure | Rate-setting method | How a holder usually seeks liquidity |
|---|---|---|
| Auction rate security | Periodic auction | Successful sell order, secondary sale, redemption, or maturity |
| Variable-rate demand obligation | Remarketing or stated mode | Contractual tender or put under the documents and available support |
| Floating-rate note | Benchmark plus or minus a spread | Secondary sale or maturity unless a put exists |
Do not infer liquidity from reset frequency. Verify the holder’s legal rights, facility coverage, dealer role, and consequences when the normal process fails.
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Auction rate securities are long-term bonds or preferred shares whose rates reset through auctions, with liquidity depending on successful bids or a secondary sale.
A variable-rate demand obligation (VRDO) is a municipal security with periodic rate resets and a put or tender feature under stated terms.
A variable-rate security is debt whose coupon changes through a benchmark, formula, auction, or remarketing process rather than remaining fixed.