Yield Pickup

Filed Under » ,
Dictionary Says

Definition of 'Yield Pickup'

The additional interest rate an investor receives when selling a lower-yielding bond in exchange for a higher-yielding bond. The bond with the lower yield generally has a shorter maturity, while the bond with the higher yield will typically have a longer maturity. A certain amount of risk is involved since the bond with a higher yield is often of a lower credit quality. Additionally, the investor can be exposed to interest rate risk with the longer maturity bond.
Investopedia Says

Investopedia explains 'Yield Pickup'

For example, an investor owns a bond issued by Company ABC that has a 4% yield. The investor can sell this bond in exchange for a bond issued by Company XYZ that has a yield of 6%. The investor's yield pickup is 2% (6% - 4% = 2%). Bonds that have a higher default risk often have higher yields, making a yield pickup play risky. Ideally, a yield pickup would involve bonds that have the same rating or credit risk, though this is not always the case.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Pickup

    A gain in yield ...
  2. Yield

    The income ...
  3. Yield Curve

    A line that ...
  4. Default Risk

    The event in ...
  5. Yield To Maturity - YTM

    The rate of ...
  6. Interest Rate Risk

    The risk that an ...
  7. Interest Rate Swap

    An agreement ...
  8. Junk Bond

    A colloquial ...
  9. High-Yield Bond Spread

    The percentage ...
  10. Duration

    A measure of the ...

Articles Of Interest

  1. The Advantages Of Bond Swapping

    This technique can add diversity to your portfolio and lower your taxes. Find out how.
  2. The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  3. Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  4. Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  6. This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.
  7. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  8. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  9. 5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.
  10. How To Invest When You're Deep In Debt

    Debt is one of the biggest obstacles that prevents people from investing - but it shouldn't be.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center