Series 3: 2.2.1.3.1. Repo Rate And Cost Of Carry

2.2.1.3.1. Repo Rate and Cost of Carry

The cost of carry for interest rate futures is its interest expense: the difference between the interest earned from holding the security that will be delivered and the cost of borrowing to finance its purchase. This difference is called net carrying cost. Since T-bills do not pay interest but are bought at discount, the net cost of carry for a T-bill futures contract is simply the interest expense incurred for funding its purchase over the period it is held.

net carrying cost = interest earned – cost of financing futures contract

net ca