How auction-rate bonds work

Auction-rate bonds are long-term securities that public entities and nonprofit organizations issue to raise money, often for such projects as buildings, public improvements and even student loans.

The bonds are rebid to investors such as corporate cash managers and wealthy individuals at auctions every seven, 28 or 35 days. Hundreds of auctions have failed to attract bidders in recent weeks because investors are worried about the financial health of the bond insurers who guarantee the debt. That has sent interest rates that borrowers pay soaring.