Concealed carry

The slope carry takes a long (short) position in the long-term bonds of countries with steeper (flatter) yield curves. The traditional carry takes a long (short) position in countries with high (low) short-term rates. We document that: (i) the slope carry return is slightly negative (strongly positi...

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Bibliographic Details
Published inJournal of financial economics Vol. 159; p. 103874
Main Authors Andrews, Spencer, Colacito, Riccardo, Croce, Mariano M., Gavazzoni, Federico
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2024
Subjects
Carry trades
Global inflation risk
Yield curves
Yield curves
Carry trades
Global inflation risk
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Summary:The slope carry takes a long (short) position in the long-term bonds of countries with steeper (flatter) yield curves. The traditional carry takes a long (short) position in countries with high (low) short-term rates. We document that: (i) the slope carry return is slightly negative (strongly positive) in the pre (post) 2008 period, whereas it is concealed over longer samples; (ii) the traditional carry return is lower post-2008; and (iii) expected global growth and inflation declined post-2008. We connect these findings through an equilibrium model in which countries feature heterogeneous exposure to news shocks about global output and global inflation.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2024.103874