riding the yield curve(redirected from Rides the Yield Curve)
Riding the yield curve
Riding the Yield Curve
riding the yield curve
The purchase of a security with a longer term to maturity than the investor's expected holding period in order to produce increased returns by taking advantage of a positive yield curve. For example, a $10,000, 26-week Treasury bill that yields 10% annually will sell for $9,524, while a 13-week bill that yields 9% will sell for $9,780. Buying the longer-term security, holding it for 13 weeks, and selling it at the existing 13-week bill price will produce a profit of $256, for an annualized yield of ( $256/$9,524 ) × 4, or 10.75%. This yield is considerably higher than what might be obtained by simply purchasing a 13-week bill. Riding the yield curve increases yield only when longer-term interest rates are higher than shorter-term rates.