What are variable rate demand obligations?

Variable-rate demand obligations (VRDOs) are debt securities that bear interest at a floating, or variable, rate adjusted at specified intervals (daily, weekly, or monthly) according to a specific index or through a remarketing process. Holders can redeem these securities at designated times. VRDOs are short-term, tax-exempt instruments whose yield is reset daily or weekly based on an index of short-term municipal rates.