Commodities · Core
Backwardation
Backwardation is a futures curve that falls with tenor — nearby richer than deferred, usually a tightness / convenience-yield story.
Definition
F(T) < F(t). High convenience yield (you want the molecule now) lifts the front. Long rollers earn the roll-down. It can vanish in a week if the tightness was a headline.
Why it matters
It is the commodity analogue of a steep carry curve. Trend-followers and indexers love it until it flips.
Case
Brent in a geopolitical squeeze: front rips, back months barely move. Backwardation is the tightness; the back is the ‘this will pass’ view.
How to read it
Inventories, spare capacity, and whether the front is a squeeze. Backwardation is not a free coupon if you are forced out of the front.
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