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Roll-Down Return

Price change from aging along the curve, assuming yields stay constant.

Roll-down return is the price change from the bond getting closer to maturity and 'rolling down' the yield curve, assuming the curve shape stays unchanged. If the curve is upward-sloping (normal), a 10Y bond yielding 4% becomes a 9Y bond yielding 3.5% after a year — price rises even with no yield change. This is 'positive roll-down.' If the curve is flat, roll-down is zero. If inverted, roll-down is negative. Curve dependency is key: steep curves offer more roll-down; flat curves offer none. For premium bonds (price >100), roll-down competes with pull-to-par (negative); for discount bonds, both effects are positive. Roll-down is a 'free lunch' in upward-sloping curves — you earn it just by holding the bond.

Formula
Roll-Down=Phorizonunchanged−PinitialPinitial\text{Roll-Down} = \frac{P_{\text{horizon}}^{\text{unchanged}} - P_{\text{initial}}}{P_{\text{initial}}}
Where
PhorizonP_{\text{horizon}}=Bond price at horizon date
PinitialP_{\text{initial}}=Bond price at purchase
Assumptions
  • Yield to maturity remains constant
  • Bond 'rolls down' the curve as maturity shortens
  • Premium bonds have negative roll-down (pull to par)
  • Discount bonds have positive roll-down (pull to par)
vs. Industry Tools
Bloomberg HRZN — Similar decomposition; may use different interpolation
Related Terms

Horizon Analysis

Projects bond returns for a holding period shorter than maturity.

Modified Duration

Measures the percentage price change for a 1% yield change.

Current Yield

Annual coupon income divided by the bond's clean price.

Running Yield

Annual coupon income divided by the bond's dirty price (clean price plus accrued interest).

Yield to Maturity (YTM)

The annualized return if you hold the bond to maturity, assuming all coupons are reinvested at the same rate.

Dirty Price

The total settlement price paid for a bond, including accrued interest.