Auction Rate


DEFINITION of 'Auction Rate'

The interest rate that will be paid on a specific security as determined by the Dutch auction process. The auctions take place at periodic intervals, and the interest rate is fixed until the next auction is held. This process is commonly used to determine the interest rate on Treasury bills.

BREAKING DOWN 'Auction Rate'

The auction rate is also used in other debt securities, such as municipal bonds. This is a good way for both the investor and the issuer to forecast their returns and costs, respectively, as the auctions can be held as often as annually or even weekly. The auction process also allows investors to mitigate reinvestment risk because the interest rate fluctuations are generally less volatile.

  1. Auction Market

    A market in which buyers enter competitive bids and sellers enter ...
  2. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
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