Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Yield Pickup

What it is:

Yield pickup is the increase in yield an investor gets by selling one bond and buying another one with a higher yield.

How it works (Example):

Let's assume Jane owns a bond issued by Company XYZ with a 5% yield. Jane sells this bond and purchases a bond issued by Company ABC that yields 7%. Her yield pickup is 2%.

Why it Matters:

It is important to note that yield is a function of risk. In particular, bonds that carry higher risk of default tend to have higher yields. Thus, a yield pickup may occur simply because the investor decided to make a riskier investment. In many cases, yield pickup is most exciting when an investor can increase his or her yield by selling and buying bonds that have the same rating or credit risk.

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