riding 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.

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.

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.
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Whilst fears around emerging market assets are still evident, given the policy normalization and attractive bond yields in the US, dealers are of the view that investors will continue to seek opportunistic positions in riding the yield curve.
Banks have been riding the yield curve -- borrowing at 0.25 percent and lending long -- to make piles of money, and there's no reason not to restore a normal penalty rate.
Some have suggested that a trading technique based on riding the yield curve - buying bonds and selling before maturity - is an effective way of increasing return, see, for example, (De Leonardis, 1966; Freund, 1970; Darst, 1975; Weberman, 1976; and Stigum and Fabozzi, 1987).
Riding the Yield Curve: Does it Work?, Journal of Portfolio Management, 7(Spring): 13-17.
This latter results from a process that has various names including "riding the yield curve", which really means benefitting from the generally-typical upward-sloping yield curve.