Concealed Carry

Spencer Andrews, Ric Colacito, Mariano Croce and Federico Gavazzoni

No 18670, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Foreign; inflation; risk; premiums (search for similar items in EconPapers)
JEL-codes: F31 G12 (search for similar items in EconPapers)
Date: 2023-12
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