Negative Carry
How funding, financing, basis, borrow, and execution costs can make a market-neutral reserve lose money.
What is it?
Negative carry occurs when financing, funding, basis movement, borrow, hedge, venue, and execution costs exceed strategy income.
Why does it exist?
A market-neutral position can still lose money. Reduced price direction does not remove carry or implementation risk.
How does it work economically?
Net carry equals earned funding or basis plus relative-value gains, minus financing, borrow, execution, venue, hedge, and operational costs.
What does the user see?
A reserve reports gross revenue, every recognized cost class, net revenue, and risk state rather than a headline yield alone.
What can go wrong?
Negative carry can persist, intensify during stress, consume reserve capital, and force deleveraging. Historical positive carry predicts nothing.
Metrics that prove it
Gross CarryDefinition, source, and current value.—
Funding CostDefinition, source, and current value.—
Borrow CostDefinition, source, and current value.—
Execution CostDefinition, source, and current value.—
Net CarryDefinition, source, and current value.—