Bond Carry, Financing Costs, Pull to Par, and Rolldown
Summary
The discussion compares ways to define bond carry, especially the proposed measure of yield minus repo financing. One answer distinguishes cash income after financing—coupon less repo—from a broader return measure that can include pull to par and yield curve rolldown. It suggests that yield to maturity can stand in for coupon plus pull to par in some contexts, and that carry may be expressed as a return or scaled by duration into basis points.
Another answer takes a narrower view: carry is cash generated by the investment minus its financing cost, while pull to par is price appreciation as maturity approaches. Under this view, a zero coupon bond can have little or negative carry, and a high yield does not guarantee high realizable carry, particularly when coupon payments are uncertain, as in distressed debt. The replies disagree on terminology, and the discussion offers no universal convention or worked calculation. It treats forward yield minus spot yield as rolldown rather than carry, underscoring that definitions vary across fixed income practice.
Key ideas
- A narrow definition of bond carry is cash income less the cost of financing.
- A broader fixed income convention may include pull to par and rolldown in carry.
- Yield to maturity can represent coupon income and pull to par in some contexts.
- High yields do not necessarily translate into realized carry when payments are uncertain.
- The discussion generally labels the difference between forward and spot yields as rolldown.
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Full text
# Carry and Pull to Par of a bond # Carry and Pull to Par of a bond I am of the understanding the true carry of a bond is `yield - repo rate`. And not simply `coupon + repo cost` because this doesn’t include pull to par. Please could someone explain why `yield - repo rate` is the real carry? ie why it is equivalent to ``` coupon + financing cost + pull to par ? ``` Secondly, where does the idea of a bonds carry = forward yield - spot yield tie into all of this? Thanks ## Answer by Edward Watson (score 2) https://quant.stackexchange.com/a/63218 I'd say coupon - repo is strictly cash flow and coupon + pull to par + rolldown - repo is the "carry", most often referenced in fixed income especially in liquid rates. We could replace coupon and pull to par with yield to maturity. You can see carry referenced as % total return or in bps which is "carry" in dollars divided by duration. ## Answer by cpage (score 0) https://quant.stackexchange.com/a/63180 I disagree with your definition of carry. Carry is the difference between the cash an investment throws off less the cost to finance it. I would argue a zero coupon bond has zero or negative carry (depending if you finance it or not). The yield to maturity is capturing the price appreciation you’d expect as you roll closer to maturity. It’s a bit of a grey area but I wouldn’t consider that carry (instead it’s price appreciation). I’d prefer current yield for calculating carry, but even then it depends on the bond. I doubt distressed debt traders would include future coupons in carry when there is substantial doubt those coupons will ever be paid. Those bonds often trade “dirty”, i.e. without any accrued to reflect that doubt. Distressed debt with 20%+ yields definitely doesn’t have 20%+ “carry”. As to your second question, don’t think it applies because disagree with using yield to maturity to calculate carry in the first place. ## Answer by user42108 (score -3) https://quant.stackexchange.com/a/61836 "where does the idea of a bonds carry = forward yield - spot yield tie into all of this?" I'd refer to that as rolldown rather than carry.
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