Definition
Roll-down return occurs when a bond's price rises as it ages and 'rolls down' the yield curve toward maturity, assuming the curve remains unchanged. With an upward-sloping curve, a 10-year bond today becomes a 9-year bond in a year, typically commanding a lower yield (higher price).
Formula
Roll-Down = Price at Shorter Maturity - Current Price (assuming unchanged curve)
Example
A 10-year bond priced at $95 rolls to 9-year point where equivalent bonds trade at $97. The $2 gain is roll-down return.
FAQ
What is Roll-Down Return?
Bond return from price appreciation as it moves down the yield curve.
How do you calculate Roll-Down Return?
A common formula for Roll-Down Return is: Roll-Down = Price at Shorter Maturity - Current Price (assuming unchanged curve)
Why is Roll-Down Return important?
Roll-Down Return helps investors evaluate fixed income and make more informed decisions.