Convenience yield
TradingDefinition
In commodity markets, the implicit benefit from holding the physical good rather than a futures contract. Captures things like guaranteed availability for production, hedging against shortages, or strategic value (oil reserves).
High convenience yield → backwardation (current more valuable than future). Low convenience yield → contango. Convenience yield can't be observed directly but is inferred from the futures curve shape.
High convenience yield → backwardation (current more valuable than future). Low convenience yield → contango. Convenience yield can't be observed directly but is inferred from the futures curve shape.