Auction Rate

Auction rate refers to the interest rate that will be paid on a Treasury security that has been auctioned off, Dutch style. A Dutch auction allows investors to make offers in terms of price and quantity, so the auctioneers can determine which price is best after the offers are made. This interest rate is stuck until the next auction. This style is also used on municipal bonds, and long-term auction rate securities.

Investment banks are common investors in these Treasuries. The upside is that it allows ample time to determine the interest rates, but the downside is that sometimes there aren't enough investors.