A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose(and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occurred, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher. Related: currency carry trade. Bloomberg Financial Dictionary
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carry trade UK US noun [C] STOCK MARKET
► a method of investing in which an investor borrows money at a low interest rate to buy an investment that is likely to produce a much higher amount of profit. Carry trades are often used by investors in foreign currencies: »
The carry trade is mostly driven by Japanese individuals trying to improve the return on their savings.
Financial and business terms. 2012.