The increase in
yield that an
investor gains when he/she
swaps a
bond with a lower
yield and shorter
maturity for one with a higher yield and longer maturity. The pick up entails
risk 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 and perhaps
inflation risk. However, the pick up represents a higher
return than the bondholder would have received with the lower yield bond.