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 Ladder

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

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

    A line that plots the interest rates, at a set point in time, ...
  4. Yield Pickup

    The additional interest rate an investor receives when selling ...
  5. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...
Related Articles
  1. 5 Basic Things To Know About Bonds
    Bonds & Fixed Income

    5 Basic Things To Know About Bonds

  2. How To Compare Yields On Different Bonds
    Forex Education

    How To Compare Yields On Different Bonds

  3. Bond Yield Curve Holds Predictive Powers
    Bonds & Fixed Income

    Bond Yield Curve Holds Predictive Powers

  4. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center