skip to main content
Briefing

Auction-Rate Securities

Appears in: North America, Finance and Banking, Markets, United States, Capital Market Intermediaries, Government Bonds/Interest Rates, Muni Bonds and Auction Rate Securities

Background:

According to Wikipedia, "Auction-Rate Securities (ARS) are long-term (30-year or more) variable rate securities that trade like short-term debt. In a dutch auction, held every 7, 28 or 35 days, investors, broker-dealers submit bids. The next interest rate is determined by the lowest rate to clear the total outstanding amount of ARS. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at the highest level spelled out in official statements issued at the initial bond sale. ARS holders do not have the right to put their securities back to the issuer; as a result no bank liquidity facility is required (as opposed to Tender Option Bonds (TOB) or Variable Rate Demand Obligations (VRDO) that can be tendered anytime to the issuer at par)" In the worst case, investors are stuck with the paper indefinitely.

Access to this content is restricted to RGE clients.

If you have a client code, please enter it here to activate your client account.

Click here for a free trial.

Learn About Our Services:

RGE Research

Our dynamic and intuitive macroeconomic research platform keeps you on top of the extraordinary shifts that transform our global economy, allowing users to uncover unique connections and insights. Discover the resource central banks and that 70% of the world's leading hedge funds, asset managers, PE firms, banks and corporations around the world depend on.

Our market strategists build on the work of our macroeconomic research team, incorporating market dynamics to answer crucial questions and generate actionable investment recommendations. RGE's Market Research and Strategy team gives clients actionable insight across six key asset classes:

• Currencies • Commodities
• Credit • Equity • Gov’t Bonds / Rates
• Emerging Markets • Financials
• Cross Asset Model Portfolio

RGE Strategy

Sometimes, reading research is not enough. Many RGE clients participate at the Roubini Direct Access level to gain a deeper understanding of specific issues. Through interactive live sessions, we engage with world-class thinkers, encourage knowledge sharing, idea generation, risk identification and validation of client initiatives.

Learn More »

For information on becoming an RGE Client, please speak with an RGE Representative in New York at +1 212-645-0010, or in London at +44 (0) 207 092 8850, or email americas@roubini.com for the Americas, europe@roubini.com for Europe, the Midddle East and Africa, and asia@roubini.com for Asia/Pacific.

Associated Readings

Analysis Financial Times Saskia Scholtes Apr 30, 2008 Turmoil leads to new index for US municipal debt market Research Federal Reserve Board Song Han and Dan Li Jul 21, 2009 Liquidity Crisis, Runs, and Security Design: Lessons from the Collapse of the Auction Rate Municipal Bond Market Analysis FINRA Oct 12, 2009 Auction Rate Securities: What Happens When Auctions Fail Analysis DealBook Oct 9, 2009 When Law Obscures the Facts: Auction-Rate Securities Follow-Up Analysis SIFMA Securities Industry and Financial Markets Association Tiffany Coln and Christine Munroe Apr 16, 2008 Municipal Bond Credit Report / The Auction Rate Securities Market Analysis Financial Times Michael Mackenzie Jul 07, 2008 More than half of ARS holders take writedowns: total impairment for these companies was $2bn Analysis Wikipedia Feb 11, 2008 Auction rate security Blogs Finance Roundtable Eli Hoffmann Aug 10, 2008 No Happy Ending for Auction Rate Securities Mess - Barron's Analysis Securitization.net Ernst and Young LLP Oct 01, 2008 Auction rate securities and settlement agreements Analysis SIFMA Securities Industry and Financial Markets Association Oct 09, 2009 SIFMA Supports Increased Transparency and Disclosure in ARS & VRDO Markets

Publications

Our Research
?

Our Thoughts
?

Outlook Center
?

Central Bank Watch
?

Key Views
?

Scenario Analysis
?
RGE Clients can activate their account by updating Manage My Account

Top 10 Most Read

Global Macro-Market Outlook
1. Macro-Market Overview: May 2013
Our Thoughts
2. The fall in China’s Flash PMI and 2013 growth prospects
Our Thoughts
3. The selloff in Japanese equity
Our Research
4. The Battle for Crude Oil’s Risk Premium
Our Thoughts
5. Downplaying the hawkish signal in the April FOMC meeting minutes
Our Research
6. Europe’s Playbook for Financial Crises
Our Research
7. Debt and Deleveraging: Will China Turn Japanese?
Our Research
8. Recent U.S. Data Signals Suggest Slow and Steady Activity
Our Research
9. The Other Fat Tail: Monetary Policy and Bubbles
Our Research
10. Gold: The Clamor and Glamour Have Gone

ROUBINI FEEDBACK FORUM

What Do You Think?
Weigh in on Roubini.com's new look or report any problems you encounter.

Website Feedback Content Feedback