Pure Yield Pickup Swap

A transaction in which bonds with lower returns are swapped for bonds with higher returns. With a pure yield pickup swap the sole purpose of the transaction is to increase yield, the new bonds will have a similar maturity and risk rating as the old bonds; only the coupon will differ.

Bonds earn yields for investors in three primary ways: coupon interest, capital gains and coupon reinvestment. Investors can use different types of bond swaps to take advantage of these different types of yields to try to improve their returns. Other examples of bond swaps include a rate anticipation swap, which is carried out with the goal of earning a better return from an expected change in market interest rates; a substitution swap, which exchanges two bonds that are similar in every way except price; and intermarket spread swaps, which seek to profit from yield mismatches between bonds in different sectors, such as government bonds and corporate bonds.