First and foremost thank you for reading my question, I hope all if you have a Happy Holiday this weekend.

On to my question:

I am completing an assignment on global sovereign bonds, I've been provided with a deck of countries followed with data on bond issuance date, maturity, coupon. The deck also includes yield (to maturity, call, worst), spread and et cetera.

I am asked to calculate expected total returns over the next 12 months based on target spreads provided. I am to categorize the expected returns into different categories (e.g. 5-10 year maturity sovereigns, credit rating).

On each of these categories I am to calculate expected return from spread and expected return from carry (i.e. yield).

I'm confused by what the difference between these two are.

Thanks again!


Happy holidays to you too.

The difference is that in one case you hold the bond to maturity (carry) with the Cupon Rate. And the expected return is the YTM (yield) seen on the secondary market trades + the spread.

That's it.

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