medium · FRM Part 1 Financial Markets and Products

A commodity is currently in backwardation. A long-only futures investor rolling their position will likely experience:

1. No roll yield results, because in true backwardation the basis is defined as zero at every point on the futures curve, not negative.
2. A negative roll yield occurs, because the investor sells an expensive, near-expiry contract and buys a relatively cheaper deferred one.
3. A gain from the 'convenience yield,' an implicit benefit of holding the physical commodity, rather than a cash payment made to futures holders.
4. A positive roll yield, as the cheaper deferred contract they buy tends to converge upward toward the spot price as it approaches maturity.

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