Roll yields and shifting analysis to hedging/not hedging

CFA Level III
#1

Hey guys, I’m reading #19 in Schweser. The material mentions that the roll yield will impact the cost/benefit analysis of whether to hedge or not.

The reading mentions that positive roll yield will shift analysis away from hedging and negative roll yield will shift analysis towards hedging (book 3, pg 181).

I’m just trying to conceptualize this. Does a positive roll yield shift away from hedging because you are earning a return from the roll and therefore somewhat protected in the position, and vice versa, or am I completely off here?

Thanks for any help.

#2

You have this backwards. Positive roll yield encourages hedging, not shifts away from hedging.

Positive roll yield = more money from taking the position = more reason to enter into it.