Suppose you sell the 10-year, A-rated 7 percent bonds you own, which are yielding 8 percent, and replace them with an equal amount of 10-year, A-rated 8 percent bonds that are priced to yield 9 percent. In this situation, you are executing

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A yield pickup swap involves selling one bond and replacing it with another bond that has a higher yield. In this scenario, you are selling bonds yielding 8 percent and buying bonds yielding 9 percent, which is a classic example of seeking to increase the income from your bond investments, hence a yield pickup swap.

Suppose You Sell the 10-Year, A-Rated 7 Percent Bonds You