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I am short a 30yr treasury. I am told (in a previous answer linked) that the 6 month carry of this position is given by $$ Rate(0, 30y) - Rate(6m, 29.5y) $$ Where the first term is the current rate for a 30yr bond, and the second term is the 6m forward rate for a 29.5 year bond.

In what sense is it a “loss” if this is < 0? What is the intuition behind this definition of carry?

Also, if this difference is positive does that mean carry costs are positive, or that carry is positive?

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An example might help: if you are short a bond with a 4% yield , whose 6m forward yield is 4.1%, then you need the yield of this bond to be at least 4.1% 6 months from now for your trade to make money. In this case, the capital gain from the 10bp selloff will equal the expected loss from (coupon minus financing) that you will suffer over the 6 months. The situation is known as “negative carry” because you need the market to move in your favor just to break even.

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  • $\begingroup$ so initially you pay 4% but then in 6 months you will have to start paying 4.1%? $\endgroup$
    – Charles
    Commented Sep 15 at 19:58

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