Carry trade BB - page 140 reading 24
Can someone please explain the statement:
” if she has confidence that Mexican rates will not rise, so avoiding deterioration of the carry”
the trade involves investing into a security that yields 7.28% and financing it with the British rate at 0.47%.
if Mexican interest rates rise, bond prices fall and yields go up.
Why would this deteriorate the carry?
Is it becuase bond prices drop and you have to sell in 6 months - risking a lower bond sales price?
thanks for clarification
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