negative carry

Negative carry

Negative Carry

A situation in which an investment has a lower yield than the cost of funding for it. For example, an investor may borrow money at 6% interest to invest in a restaurant with only a 4% yield. In this case, the investor has a negative carry of 2% and is actually spending money to invest in the restaurant. One may think of a negative carry as a bad investment, but it sometimes results in a net profit if the interest on the cost of funding is tax deductible and the investment itself is a tax free security, such as a municipal bond.

negative carry

The net cost of an investment position when the investment's cost of carry exceeds its current income. For example, buying a bond with a current yield of 10% and financing the purchase with money borrowed at 13% will result in a negative carry. Compare positive carry. See also carrying charges.
References in periodicals archive ?
MARC notes that in the event of an unexpectedly high volume of prepayments, the risk of a negative carry position will be mitigated by the transaction's conditional pass-through provision feature which allows partial early redemption of CMBS 2005-1's Tranche 6, maturing in August 2020.
Longs will be used to offset some of the negative carry, and will be focused on shorter-dated, secured, floating-rate bank debt.
That being said, risk/reward profiles of outright 1y receivers is perhaps not as appealing for those willing to jump on the trade just now given the negative carry involved.
dollar, Barakat told The Daily Star that the negative carry on primary liquidity in foreign currency would continue throughout 2012 because interest rates globally are expected to remain low.
Affiliates are offered from 25% up to 40% lifetime commission on the players they send, as well as attractive terms and conditions like no negative carry over.
75 per cent, our net cost of carry model implies that prices can rise by 30 per cent before home buyers enter negative carry.
MIDDAY SNAPSHOT & ANALYSIS OF SELECTED RATES The weaker than expected earnings out from Morgan Stanley this morning have not helped to bolster investor sentiment with negative carry benefiting on the elevated risk aversion.
com's 4 in 1 program (Sportsbook, Casino, Poker & Games), has a proven conversion rate with no negative carry over, and offers unbeatable deposits bonuses and unique promotions.
Since credit card receivables generate yield, which is used to pay trust expenses, including interest to bondholders, a failure to generate new receivables could ultimately result in negative carry and excess spread compression.
These include a pass-through mechanism, which reduces any potential negative carry arising from low reinvestment returns, and a MYR one million Liquidity Facility Reserve that acts as a buffer to cover shortfalls in senior expenses and coupon payments on the Class A Notes.
Barakat believes that interest rates abroad are not going to increase in 2012 and this negative carry is likely to persist throughout all of next year.
Data are too backward looking to change the overall assessment, but the downward revision means the negative carry over effect for this year will be larger than previously expected, which will pull down growth even more.