Carry

Carry is the income return of a bond or trade. This term is used in a variety of situations.

Example
Our mutual fund's strategy is to consistently overweight high-quality corporate bonds while under-weighting Treasuries. This should allow the fund to outperform on carry. (Translation: since the corporates out-yield the Treasuries, this portfolio manager expects to outperform his/her index by simply out-yielding it.)

Example
We recommend selling your 2-year agency bullets for 2yr NC 1. You pick 25bps of carry. (Translation: By selling the bullet for the callable, you increase yield by 25bps)

Example
The mortgage REIT pared back on its leverage as the inverted yield curve was killing their carry. (Translation: Mortgage REITs rely on borrowing in the REPO market and investing the proceeds in mortgage loans. If the REPO rate rises but the yield available on the mortgage loans does not, the strategy is less attractive. In this case, carry is net of hedging and borrowing costs.)