Definition
Yield pickup is the increase in yield achieved by selling one bond and purchasing another with higher yield. Investors might swap from Treasuries to corporates for yield pickup, accepting additional credit risk. The decision depends on whether the extra yield adequately compensates for added risk.
Formula
Yield Pickup = New Bond Yield - Old Bond Yield
Example
Sell Treasury yielding 4%, buy corporate yielding 5.5%. The 150 basis point yield pickup compensates for credit risk.
FAQ
What is Yield Pickup?
The additional yield gained by swapping to a higher-yielding bond.
How do you calculate Yield Pickup?
A common formula for Yield Pickup is: Yield Pickup = New Bond Yield - Old Bond Yield
Why is Yield Pickup important?
Yield Pickup helps investors evaluate fixed income and make more informed decisions.