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Derivatives

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Basis Point Upfront Carry

A carry trade in which an investor expresses a notional neutral curve switch. This carry is expressed in basis points upfront on the curve switch (the investor receives fixed on the shorter rate and pays fixed on the longer rate). For instance, if the expected carry for a trading involving 3-year swap/8-year swap is 90 basis points, an investor who receives fixed on USD 100 million of a 3-year swap versus paying fixed on the same notional of an 8-year swap would make a profit of USD 900,000 due to the upfront carry effect over the interval.


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