A concept popular in the fixed-income space that focuses on assessing the expected return from holding (carrying) a fixed-income instrument, such as a bond, (the “passage of time” factor) and, in addition to the yield, any expected capital gains from the term structure premium.

This constitutes the yield earned through investing in longer-term interest rates added to any capital gain that can be realized from a decrease in yield experienced by holding a debt instrument in an environment of an upward-sloping yield curve. This involves targeting the most favorable section of the yield curve on expectation that at the time of unwinding the trade, the yield curve will be much similar to the today’s curve than to the forward curve.

In other words, the “roll-down effect” reflects the capital benefit over the period, that will be combined with the accrued yield benefit (the carry benefit) from holding an asset over time.