More and more people are feeling the squeeze

Auction-rate securities are the latest arcane area of the bond market to be hit by the credit crunch.

Another arcane area of the bond market has been hit by the credit crunch, says The Economist: the auction-rate securities market, which is worth $330bn.

It involves providing short-term funding for long-term municipal commitments. An authority turns over a bond through an auction at intervals ranging from a week to a month, a process that costs it less overall than simply issuing a long-term bond. Should an auction fail, the borrower's interest rate on the loan rises, often quite dramatically, so that whoever ends up with the bonds is compensated for the loss of liquidity.

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