Roll-Down Return


DEFINITION of 'Roll-Down Return'

A form of return that arises when the value of a bond converges to par as maturity is approached. The size of the roll-down return varies greatly between long and short-dated bonds. Roll-down is smaller for long-dated bonds that are trading away from par compared to bonds that are short-dated.

BREAKING DOWN 'Roll-Down Return'

Roll-down return works two ways in respect to bonds. The direction depends on if the bond is trading at a premium or at a discount. If the bond is trading at a discount the roll-down effect will be positive. This means the roll-down will pull the price up towards par. If the bond is trading at a premium the opposite will occur. The roll-down return will be negative and pull the price of the bond down back to par.

  1. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  2. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Par

    1. The face value of a bond. Generally $1,000 for corporate issues, ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Discount

    The condition of the price of a bond that is lower than par. ...
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