Unlocking the Potential of Variable Coupon Renewable Notes (VCRs)

Explore the dynamics of Variable Coupon Renewable Notes, a debt security that aligns with market conditions through periodic interest rate adjustments.

A variable coupon renewable note (VCR) is a renewable fixed-income security with variable coupon rates that are periodically adjusted. These renewable notes mature on a weekly basis, and the principal is reinvested automatically at new interest rates each week it matures.

Key Takeaways

  • Variable coupon renewable notes mature weekly with reinvested principal at a refreshed interest rate that is set at a fixed spread over a benchmark rate.
  • Commonly, this benchmark rate is the 91-day Treasury bill rate.
  • The automatic reinvestment continues until the owner chooses to discontinue.

Understanding Variable Coupon Renewable Notes (VCR)

A variable coupon renewable note (VCR) is a debt instrument that matures every week, and the principal is automatically reinvested at a new interest rate, defined by a fixed spread over a reference rate.

Typically, the coupon rate is recalibrated on a week-by-week basis, consistently maintaining a fixed spread above the Treasury bill rate, specifically the 91-day T-bill. This continuous and automatic reinvestment persists until the security owner intervenes to stop reinvestment. Given that T-bills, to which VCR’s initial rate is linked, are supported by the U.S. government’s full faith and credit and have a maturity period of one year or less.

The VCR’s coupon is payable on a quarterly basis and extends its maturity for another 91 days at the three-month mark. It also includes an embedded put option, enabling the note holder to exercise the put — to return the notes to the issuer at par value — on coupon payment dates. This requires the issuer to repurchase the notes from the holder but usually at a reduced spread over the reference rate.

VCR notes contrast with variable rate renewable notes (VRRs). While VCR coupon rates adjust weekly, VRR rates are updated monthly. Additionally, the VRR coupon rate aligns with a fixed spread relative to the 1-month commercial paper rate.

Essentially, variable rate renewable notes accrue interest at a delineated rate that is periodically realigned based on the 1-month commercial paper rate plus any additional spread or spread multiplier, subject to minimal and maximal interest rates as predefined.

Related Terms: Variable Rate Renewable Note, Treasury Bill, Investment, Debt Security, Coupon Rate.


  1. U.S. Department of the Treasury, Bureau of the Fiscal Service. “Treasury Bills”.

Get ready to put your knowledge to the test with this intriguing quiz!

--- primaryColor: 'rgb(121, 82, 179)' secondaryColor: '#DDDDDD' textColor: black shuffle_questions: true --- ## What does the "Variable" in Variable Coupon Renewable Note (VCR) signify? - [ ] The principal of the note varies - [x] The interest rate of the note varies - [ ] The maturity date of the note varies - [ ] The issuer of the note varies ## What type of investor might be most interested in a Variable Coupon Renewable Note (VCR)? - [ ] A risk-averse investor seeking consistent returns - [x] An investor looking for potentially higher returns based on fluctuating rates - [ ] An investor preferring fixed income investments - [ ] An investor focused on short-term gains ## For which financial product is the interest payment structure tied to a benchmark rate? - [ ] Fixed-rate bonds - [x] Variable Coupon Renewable Notes (VCR) - [ ] Zero-coupon bonds - [ ] Treasury bills ## Which of the following best describes the "Renewable" feature of a VCR? - [ ] It automatically reinvests dividends - [ ] It converts into equity - [ ] It can switch from fixed to variable interest rates - [x] It can be renewed or extended after its initial maturity period ## How often can the interest rate on a Variable Coupon Renewable Note change? - [ ] Annually - [x] Periodically according to the terms set out - [ ] Never, it stays constant - [ ] Only at the end of the maturity period ## Which benchmark rate is commonly used to determine interest payments on a VCR? - [x] LIBOR (London Interbank Offered Rate) - [ ] FIRE (Federal Interest Rate Equilibrium) - [ ] HPI (Housing Price Index) - [ ] CPI (Consumer Price Index) ## Compared to fixed-rate bonds, Variable Coupon Renewable Notes are: - [ ] Less sensitive to interest rate changes - [x] More sensitive to interest rate changes - [ ] Equally sensitive to interest rate changes - [ ] Insensitive to interest rate changes ## One key benefit of investing in a Variable Coupon Renewable Note is: - [ ] Fixed interest payments - [ ] Fixed maturity value - [x] Potentially higher returns if interest rates rise - [ ] Guaranteed minimum returns ## What happens to the interest payment of a VCR if the benchmark rate falls? - [ ] The interest payment increases - [ ] The interest payment remains the same - [x] The interest payment decreases - [ ] The interest payment converts to principal ## Variable Coupon Renewable Notes (VCR) are most beneficial in which market conditions? - [ ] Stagnant interest rate markets - [ ] Declining interest rate markets - [x] Rising interest rate markets - [ ] Deflationary markets