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. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Par

    Short for "par value," par can refer to bonds, preferred stock, ...
  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. 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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