negative carry

Negative Carry

A situation in which the cost of financing a securities or financial futures position exceeds the yield earned.

Notes:

A negative carry would occur if an investor borrowed $1000 at 12.5% and used the $1000 to purchase a bond yielding 9.5%. The bond's coupons would not cover the interest owing, so the investor would end up paying 3% to make the investment.

An investor might, however, achieve a positive after-tax yield if the bond is tax-exempt and interest on the loan is tax-deductible.

See also: Bond, Cost of Carry, Futures, Positive Carry, Yield

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Negative carry

Related: Net financing cost

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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.