What's the difference between riding the yield curve and Buy and hold?

Arent they essentially the same thing?
If an upward sloping yield curve

Riding the yield curve implies selling the bond before maturity.

Buy and hold implies holding the bond to maturity.

If the curve is upward sloping, and rates are stable.

Why would somebody ride the yield curve instead of buy and hold?

  1. The investor may have an investment horizon that is shorter than the maturity.

  2. The investors believes that the biggest yield drop (i.e. where the yield curve is steepest) is within that holding period.

Buy and Hold is the old classic way of collecting fixed coupons with a well predictable fixed income cash flow, simple as that. If your investment horizon is 5 year, well, just buy a whole bunch of 5 years bond and hold…

Ride the yield curve has two differentiators, one as it time horizon and the second one as its accumulation source.

Time Horizon:
In the previous example, we buy 5 year bond because of the 5 year IH. However, when riding the yield curve, it can be very different, and likely which kind of bond to buy and how long you hold thems is dependent on the yield curve shape. Find the segment where it is the steepest and “buy high sell low” to capture the capital appreciation in additional to the coupon. For example, that we have 5% for 5 year and 2% for 4 year, and 1% for 3 year and the yield curve won’t even change at all during our IH, in that case, we will buy 5 year, hold for one year and sell, then keep doing this year after year.

During the first year, you certainly received the highest coupon, at the same time, after year one, you now ended up with a bond that the time to maturity is 4 years but still with the highest coupon rate. However, now to calculate its market value, the cashflow will be discounted at a lower rate, the same as the 4 year bond at 2%! It actually appreciated!

In this case, we will buy certain segment (steep and longer term), hold it when the coupon and capital gain got maximized.

This is just my personal understanding. As I am not in the finance field, so I bet someone who does this for a job can tell a more intuitive story.


I demonstrated the coupon payment and its price appreciation after year 1. In total, we will have almost 16.42 gain in year one… unbelievable, well, soon people will all play this game, and 5 year bond will be at high demand which the yield will be driven down and so no free lunch I guess?