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.