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Yield Pickup

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Yield Pickup
The extra yield an investor receives when he/she exchanges a bond with a lower yield (and usually a shorter maturity) for one with a higher yield (and usually a longer maturity). While this exchange sounds advantageous, it is risky because the yield pickup often comes from a bond with lower credit quality, and the longer maturity likewise exposes the investor to interest rate risk. However, the yield pickup is still a guaranteed higher return, and many investors take advantage of them. See also: Pure yield pickup swap.


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We believe that this will generate the volume and yield pickup needed to maximize our return on investment," said Mitchell H.
Notice also that the client is earning 30 points more than the current AA rate, a yield pickup made possible by linking two parties whose assets have different returns.
These bond segments are now expensive and investors need to understand that exploiting the yield pickup over high-grade bonds will become riskier in 2007.
 
 
 
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