Trade · 6 pages · 12 min

Why contango and backwardation describe curves

Contango is an upward futures curve and backwardation a downward one, names for shape rather than for a verdict.

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From the opening

Contango and backwardation are names for the shape of a futures curve across delivery months. Contango means later months are priced above nearer ones, and backwardation means later months are priced below nearer ones. The opening covers contango slopes upward with time, backwardation slopes downward, and carry versus nearby scarcity.

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Inside

Contango slopes upward with time
Backwardation slopes downward
Carry versus nearby scarcity
Slope is not the price level
Where the idea stops applying
A distinction worth keeping

Sources

Contango
Backwardation and convenience yield

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Why contango and backwardation describe curves

From the opening

Inside

Sources

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