In a pure yield pickup swap, ________ bonds are exchanged for ________ bonds.

Question

Quizplus · Accepted Answer

In a pure yield pickup swap, shorter-duration bonds with lower yields are exchanged for longer-duration bonds with higher yields. This is done to increase the overall yield of the portfolio. Choice A is incorrect as it suggests exchanging longer-duration bonds for shorter-duration bonds, which would decrease the overall yield. Choice C is incorrect as it suggests exchanging high-coupon bonds for high-yield bonds, which would not necessarily result in a yield pickup. Choice D is also incorrect as it suggests exchanging low-yield bonds for high-yield bonds, which would not necessarily result in a yield pickup.

In a Pure Yield Pickup Swap, ________ Bonds Are Exchanged