riding the yield curve(redirected from Rides the Yield Curve)
Riding the yield curve
Buying long-term bonds in anticipation of capital gains as yields fall with the declining maturity of the bonds.
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Riding the Yield Curve
An investment strategy in which one buys a long-term bond and sells it before maturity. Riding the yield curve allows the bondholder to profit from the declining yield that occurs over the life of the bond.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.