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."


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.

  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Yield Pickup

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

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

    A line that plots the interest rates, at a set point in time, ...
  5. Bond Ladder

    A portfolio of fixed-income securities in which each security ...
  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. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  7. Investing Basics

    The 4 Biggest Bond Myths

    Bonds can be a great addition to a portfolio but be aware of these four myths.
  8. Investing

    Watch Your Duration When Rates Rise

    While recent market volatility is leading investors to look for the nearest exit, here are some suggestions for bond exposure in attractive sectors.
  9. Bonds & Fixed Income

    What are Treasury STRIPS?

    STRIPS is an acronym that stands for Separate Trading of Registered Interest and Principal Securities.
  10. Investing Basics

    How Does a Convertible Debenture Work?

    A convertible debenture is an interest-bearing loan a company issues that can be turned into stock.
  1. 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 >>
  2. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  6. What are the differences between debt and equity markets?

    The basic differences between the debt and equity markets include the type of financial interest they represent, the way ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!