Negative Carry
2020-08-10 14:49
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A situation in which the cost of financing a securities or financial futures position exceeds the yield earned.
Taobiz explains Negative Carry
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.
