What does Negative Carry mean?
A negative carry is a situation in which an investment has a lower yield than the cost of funding for it. The cost of holding a security exceeds the yield earned.
Futures Knowledge Explains Negative Carry
Suppose an investor borrows $5,000 at 4% from a bank and purchases short term US Treasury bond yielding 0.75%. He will lose money for the time being. This is an example of a negative carry.
The investor gets negative return by carrying such investment. Prima facie it looks the investor loses money. But sometimes this may be a prudent and conscious business decision. For example, you may keep liquid fund borrowed from bank and wait for good long term investment opportunity. Here you will have negative earnings for a short period but anticipates having positive earnings in future.