negative carry
(redirected from Negative Carries)Negative carry
Related: Net financing cost
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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.