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I would like to generate a daily carry return index for a given currency pair - lets take USDEUR as an example.

I presume this involves something like taking the spot rate and the appropriate funding/deposit rates in each currency and then borrowing in EUR (pay O/N?) buy USD (earn O/N?) and then unwind at the following days spot. I'm unsure about the correct instruments and rates to use to generate the series.

Essentially I'm trying to reconcile the spot and carry return indices in Bloomberg, for USDEUR these are:

  • Spot return index: 'USDEURSR CURNCY'
  • Carry return index: 'USDEURCR CURNCY'
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    $\begingroup$ In the academic literature the carry trade is usually implemented with one month forwards. (not O/N swaps). $\endgroup$
    – nbbo2
    Commented May 14, 2021 at 0:02
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    $\begingroup$ Why don't you ask the help desk? $\endgroup$
    – AKdemy
    Commented May 14, 2021 at 7:13
  • $\begingroup$ Is the goal to replicate the BBG indices (in which case, see the answer from @AKdemy) or to track returns from carry trades? As @noob2 pointed out, these are not normally executed via spot + deposits. $\endgroup$
    – user42108
    Commented May 14, 2021 at 17:31

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I would say best to ask the help desk. They probably will not replicate this for you, but explain what is used.

Here is what I think:

  • USDEURCR DES page states it is using 1/1/1999 as the base date (value of 100) and long USD short EUR with CMPN as pricing source.
  • I tried it but struggled a bit initially with a small mismatch. Turns out BBG uses inverse of EURUSD and not simply USDEUR. This makes intuitively more sense as both EURUSD and USDEUR have quotes on ALLQ but USDEUR is not liquid (against market convention) as GIT shows (roughly 1.2 million ticks vs about 170K for BGN source).
  • SR is literally just $return * value\;previous\; period$
  • USDEURCR is similar but has rates included. The help page found on the terminal if you copy paste LPHP FXSW:0:1 997174 shows the formulas. These interest rates seem to be mapped according to LPHP WCRS:0:1 628875. So I use spot return and interest return - interest cost.
  • so the computation seems to be:

enter image description here

Ultimately, all these indices are a rough guidance. If you care about detail, it is always best to not rely on anyone else's implementation in my opinion. FXSW actually is fairly flexible - and you can export the entire calc in excel (see all positions, all trades and the like).

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