Pure yield pickup swap

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Pure yield pickup swap

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Pure Yield Pickup Swap

A swap in which two investors exchange two bonds, one with a lower yield and shorter maturity and one with a higher yield and longer maturity. This is a high risk transaction for the holder of the lower yield bond (that is, the one who receives the high yield bond). This is because the high yield bond is almost always of lower credit quality and the longer maturity exposes the bondholder to interest rate risk. However, it does guarantee a higher return that the bondholder would have received with the lower yield bond.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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