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'