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 ?
There are three common parameters for computing the MLR: marginal costs of funds, negative carry charges on cash reserve ratio and operating cost.
This gap creates substantial negative carry in Fitch's analysis in stressed scenarios and is most severe if interest rates go up (due to the swap in place in such scenarios).
For any investor betting on a French exit from the single currency, two-year German Bunds carry much less price risk than 10-year German Bunds, more than compensating the negative carry.
Moreover, negative carry of 200-300 bps on liquidity support for maturing debentures will impact earnings, though the impact will be marginal (around 0.
If not, there is a negative carry if we borrow earlier," he said.
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.
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.
MCLR is calculated after factoring in banks' marginal cost of funds (largely, the interest at which they borrow money), return on equity (a measure of banks' profitability), and negative carry on account of cash reserve ratio.