Explain the rolling-down-the-yield-curve strategy
The idea
Rolling down the curve means buying a bond with a maturity longer than the investment horizon and selling it at the horizon. If the curve slopes upward and stays where it is, the bond ages into a shorter maturity with a lower yield, so its price rises by more than the passage of time alone would give. The return then beats the yield at purchase and beats a bond that matures at the horizon. The key assumption is a stable, upward-sloping curve. If the curve is flat, there is nothing to roll down; if it slopes downward at the relevant maturities, the bond rolls up to a higher yield and the strategy costs return.
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