Pickup

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."

BREAKING DOWN '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. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Bond Ladder

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

    The additional interest rate an investor receives when selling ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
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. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
  7. Mutual Funds & ETFs

    The 4 Best Fidelity Funds for Income Seekers in 2016

    Discover the four best fixed-income mutual funds administered and managed by Fidelity Investments suitable for income-seeking investors.
  8. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  9. Mutual Funds & ETFs

    The 4 Best Vanguard Funds for Income Seekers in 2016

    Discover four mutual funds administered and managed by the Vanguard Group that would be suitable for income-seeking investors for 2016.
  10. Mutual Funds & ETFs

    5 Vanguard Fixed Income Fund Outperformers

    Discover analyses of three Vanguard fixed-income funds that have historically outperformed their benchmark indexes, and learn about their characteristics.
RELATED FAQS
  1. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  2. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  3. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  4. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  5. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  6. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center