Horizon Analysis
Horizon analysis estimates your total return from holding a bond for a specific period (say, 6 months or 1 year) and then selling it — rather than holding to maturity. Why use it? Most bonds are traded, not held to maturity, so horizon returns matter more than YTM. The total return decomposes into four components: carry (coupon income), roll-down (price change from aging along the curve), price effect (price change from yield/spread moves — your speculation/bet), and reinvestment (income from reinvested coupons). This breakdown shows what you're earning from 'automatic' sources (carry + roll-down) versus what depends on market moves (price effect). Traders use horizon analysis to compare bonds on a forward-return basis rather than static YTM.
Related Terms
Carry Return
Return from coupon income received during the holding period.
Roll-Down Return
Price change from aging along the curve, assuming yields stay constant.
Price Return (Yield Change)
Price change from yield or spread movements — the speculative component.
Reinvestment Return
Income from reinvested coupons at the assumed rate.
Total Horizon Return
Sum of all return components over the holding period.