Roll-Down Return

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Discount

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

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

    The period of time for which a financial instrument remains outstanding. ...
  4. Bond

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

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

    1. The total cost of an option. 2. The difference between the ...
Related Articles
  1. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  2. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

  3. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

  4. How long are credit ratings valid?
    Bonds & Fixed Income

    How long are credit ratings valid?

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center