Negative Carry
A situation in which the cost of financing a securities or financial futures position exceeds the yield earned. Investopedia Says:
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. Related Terms:
Bond
Cost of Carry
Futures
Positive Carry
Yield |