DEFINITION of 'Negative Carry'
A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
BREAKING DOWN 'Negative Carry'
A negative carry would occur if an investor borrowed $1,000 at 12.5% and used the $1,000 to purchase a bond yielding 9.5%. The bond's coupons would not cover the interest owing, so the investor would end up paying 3% to make the investment.