Cross-asset carry
CarryAdvanced
Carry is the return you earn if prices do not change: the interest differential in currencies, the roll yield in futures, or the yield spread in bonds. A carry strategy goes long assets with high carry and short assets with low carry. It is a risk premium, not a technical signal, and it can lose a lot when the high-yield side devalues.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- For FX, long the currencies with the higher short-term interest rate and fund them with the lower-yielding currencies. For futures, compare the futures curve with spot and own the contracts that pay you to roll, while shorting those that cost you. Size by volatility, rebalance monthly, and do not let one region dominate. Many implementations combine carry with a trend filter so a high-yield currency in a clear downtrend is reduced or dropped.
- Where AI fits
- AI can assemble carry from rate curves and futures terms, which is a data problem more than a prediction problem, and it can cut exposure when a crash model or a trend filter disagrees. An LLM can document the carry definition so the backtest matches the paper. It cannot remove the crash risk that is the reason carry pays anything.
- Markets
- G10 currencies, commodity futures, bond futures, and equity-index futures. Retail FX carry on high-yield emerging currencies adds political and gap risk.
- Timeframes
- Monthly, sometimes weekly. Not a day-trading rule.
- Risks
- Carry loses in flights to safety, when the high-yield side gaps down and the funding currency rallies. Leverage hides that until it does not. Interest rates and futures curves change, so a static ranking goes stale.