Can someone pls put my mind at rest. I have heard 3 different definitions of bond 'carry', can someone explain the key differences between them and why they differ? E.g, 3m carry1. Cost of Carry = spot prc - 3mfwd price (i.e. coupon vs funding rate, albeit one on bond notional, the other on market price). Or use the spot yld - 3mfwd yield, where the 3mfwd yield correponds to the forward price --> if using either of these definitions, what is positive carry? fwd yield over spot yield or fwd price under spot price?2. Constand Yield = Look at return from position by backing out a price from a fwd yield that equals spot ytm, i.e. what would price be if ytm is constant, given bond is now 3m maturer etc.3. Constant Price = Assume that the price you pay today for the bond in 3m on the repo will be realised in the future, then back out the corresponding yield and compare this to the spot yieldDo any or all of these include the roll-down or not?Rgds,H.

To calculate the fwd yield, just take the yield of the fwd price.Loosely, "carry" is usually defined as how much you get paid if you enter into a position and the prices don't change over your investment horizon. In the case you mentioned, carry should be defined as (spot price - fwd price). To get the carry in terms of yield, divide -(spot price - fwd price) by the dv01. You say carry is "positive" if spot price > fwd price.Most people would define "yield carry" as fwd yield - spot yield. In this case, if the yield doesn't change, you earn (fwd yield - spot yield) * dv01. Note that unchanged yield isn't the same as unchanged price: If your bond isn't trading at par, it'll pull to par (i.e., its price will move toward 100) if the yield stays the same. As a result, price carry and yield carry aren't the same. The difference between -(spot price - fwd price)/dv01 and (fwd yield - spot yield) is your pull to par.You can calculate pull to par by seeing how much the price changes if the yield remains unchanged to the investment horizion. Divide the dollar pull to par by the dv01 to see the effect in yield.In sum (fwd yield - spot yield) ~= [-(fwd price - spot price) + pull to par] / dv01.None of these definitions includes rolldown.

I believe the repo rate is very important. In my experience, the 'cost of carry' was always defined in terms of the rate in which the bond could be repo'd out. Usually it was the overnight rate. HOWEVER, if someone is squeezing the market (say for a cash vs. future strategy) on a bond, the repo rate will be lower, hurting those who are short the bond.I hope this helps.

u418936, this is a great help,Does this mean that (Fwd Yld - Spot Yld) encapsulates the 'cost of carry' and the pull to par whereas just looking at the fwd price- spot price) only takes into account the 'cost of carry'? I.e if dv01 =.10;Spot-Fwd Prc = +31c = +.31/.10 bps = +3.1bps (positive carry) and Fwd Yld - Spot yld = -1.1bps (negative carry?) , this means net net I get negative carry, with pull to par of 4.2bps working against me?H.

QuoteOriginally posted by: renikusu418936, this is a great help,Does this mean that (Fwd Yld - Spot Yld) encapsulates the 'cost of carry' and the pull to par whereas just looking at the fwd price- spot price) only takes into account the 'cost of carry'? I.e if dv01 =.10;Spot-Fwd Prc = +31c = +.31/.10 bps = +3.1bps (positive carry) and Fwd Yld - Spot yld = -1.1bps (negative carry?) , this means net net I get negative carry, with pull to par of 4.2bps working against me?H.Yes and yes. A high-cpn bond will have a high dollar carry (which is good if you're long), but it'll have a high dollar price, so it'll pull to par (which is bad if you're long).In my opinion, (fwd yield - spot yield) is the best way to look at "carry", even though it includes pull to par. If I'm thinking about putting a trade on where I term the repo to a fwd date, I'll want to know how much money I'll make or lose if yields don't change, which is always a decent baseline scenario. I don't think a lot of traders think in terms of unchanged prices.

Many thanks...How does it work for swap carry? If i think abt the cash amount of carry of a vanilla swap (e.g. 5yr par), on a 6m basis, it is going to simply be the fixed rate against 6m libor, using the appropriate daycount. However, others look at the carry by looking at the fwds. Is this the same thing? Drawing an analogy with the bond carry, there is an inconsistency between looking at the cash amount, and using the difference in fwd -spot yields.6m carry = 4.5yr spot,6m fwd - 5yr spot OR 6m carry = 5yr,6m fwd - 5yr spot ???Again, do any of these include the roll-down?Rgds,R.