Pickup

AAA

DEFINITION of 'Pickup'

A gain in yield made by selling one bond and buying another. When market interest rates change, bond yields change. If the new interest rates are higher than the old rates, investors can achieve a better yield, or pickup, by selling their old bonds and buying new ones that have the same level of risk. However, if interest rates are steady, or declining, the only way to achieve a pickup is to buy existing, higher interest-rate bonds at a premium or to buy higher-risk bonds that carry a higher yield. Thus, a pickup strategy may entail cost or risk.


Also referred to as "yield pickup."

INVESTOPEDIA EXPLAINS 'Pickup'

Pickup is the most common reason why investors trade bonds. Other reasons include an anticipated credit upgrade for a bond issuer (particularly if the upgrade will move the bond from junk to investment grade), a credit-defense trade to limit a portfolio's exposure to default risk and a sector-rotation trade to benefit from anticipated outperformance in a particular industry or sector. Investors also use yield curve adjustment trades to change the duration of a bond portfolio based on expectations about the direction of interest rates. When they anticipate rising interest rates, they will want to shorten the duration of their portfolios; when they anticipate declining interest rates, they will want to lengthen the duration of their portfolios.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security ...
  3. Yield Pickup

    The additional interest rate an investor receives when selling ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  6. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
Related Articles
  1. Bonds & Fixed Income

    5 Basic Things To Know About Bonds

    Learn these basic terms to breakdown this seemingly complex investment area.
  2. Forex Education

    How To Compare Yields On Different Bonds

    Find out how to equalize and compare fixed-income investments with different yield conventions.
  3. Bonds & Fixed Income

    Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  6. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  7. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  8. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  9. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  10. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center