An investment strategy or behaviour where investors seek higher returns by moving capital into riskier assets that offer above-average yields, often without adequately assessing the associated risks. Yield chasing is particularly prevalent during periods of low interest rates when traditional safe-haven investments provide minimal returns, pushing investors into high-yield bonds, leveraged products, dividend-paying equities, or exotic instruments. This behaviour can create bubbles in yield-sensitive assets and increase systemic risk when the risk appetite eventually reverses.
Example
“With Treasury yields near zero, pension funds engaged in yield chasing by increasing allocations to high-yield corporate bonds and emerging market debt, significantly increasing their credit risk exposure.”