Commodity Investing: From Theory to Practice · Dr MAI Huu MinhChapter 5 of 22 · Module 2: Markets and instruments
CHAPTER 5
Term Structure: Contango, Backwardation and the Roll
The futures curve and why it matters for returns
Opening question
“Oil rose 10% this year but my oil fund lost money. How is that possible?”
In this chapter
- Why a commodity has a whole curve of prices, not one price
- The cost of carry: financing, storage and the convenience yield
- The theory of storage: why the curve depends on inventories
- Contango and backwardation, and what each means for an investor
- How a fund rolls its contracts, step by step
- Roll yield in practice, with the answer to the opening question
- Ways to manage the roll: deferred contracts, optimised and constant-maturity rules
- Reading the curve as a signal, with examples from Vietnam and Asia
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This chapter is in the full book
Chapter 1 is free to read online. The full text of chapter 5 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Commodity Investing: From Theory to Practice (Volume 2, NXW Investment Library).
Read Chapter 1 freeGet the full book — [email protected]Sections of this chapter
5.1 A curve, not a price
5.2 The cost of carry
5.3 Convenience yield and the theory of storage
5.4 Contango and backwardation
5.5 How a fund rolls its futures
5.6 Roll yield in practice
5.7 Managing the roll
5.8 Reading the curve as a market signal
5.9 The curve seen from Vietnam