CFA Level I · CFA Level I Exam · Natural Resources
A fund holds a long position in a commodity futures contract. The futures curve is in contango and the spot price stays unchanged over the holding period as the contract converges to spot. The roll yield from holding the position is most likely:
The roll yield is negative. In contango, the futures price is above spot, and with an unchanged spot price it converges downward to spot at expiry, so a long position loses value. Positive roll yield occurs in backwardation.
- AnegativeCorrect
- Bzero
- Cpositive
Explanation
In contango, futures prices exceed the spot price. With an unchanged spot price, the futures price falls toward spot at maturity, so a long position loses value from the roll, giving a negative roll yield. Positive roll yield arises in backwardation.
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