Positive Carry
Positive Carry
Positive carry refers to a situation in finance where the income generated from an investment exceeds the cost of financing that investment. This typically occurs in scenarios where the yield on an Asset is greater than the Interest Rate on borrowed funds used to acquire that Asset.
Examples:
- Real Estate Investment: An investor buys a rental property generating $2,000 monthly in rental income while the mortgage costs $1,500 monthly. The positive carry is $500.
- Bonds: An investor purchases a bond with a 5% yield while financing the purchase with a loan at a 3% Interest Rate, resulting in a positive carry of 2%.
Cases:
- Corporate Financing: A company may issue debt at a lower Interest Rate to invest in high-yield projects, generating Returns greater than the Cost of Debt.
- Forex Trading: In carry trades, traders borrow in currencies with low Interest Rates to invest in currencies with higher rates, profiting from the Interest Rate differential.