A Model for Fixed-Income Returns
A negative rolldown return is most likely caused by:
No.
It isn't the flattening or steepening of the yield curve that causes the sign of the rolldown return. Consider the price return of a bond holding many things constant.
Yes!
Bonds purchased at a premium must have their price converge down to par, and so the rolldown return, assuming a typical and unchanging yield curve, will be negative as the holding periods experience losses (compensated by above-market coupon incomes to justify that premium price).
Not so.
The rolldown return is calculated by specifically disallowing any shift in the yield curve.
the yield curve flattening.
a premium purchase price.
an upward shift in the yield curve.
