Contango

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Contango

A market condition in which futures prices are higher in the distant delivery months.

Contango

A situation in which the futures price for an asset is higher than the expected future spot price. The futures price in contango declines to the future spot price as the futures contract approaches maturity. See also: Backwardation, Keynesian economics.

contango

In futures or options trading, a market in which longer-term contracts carry a higher price than near-term contracts. The premium accorded to longer maturities is a normal condition of the market and reflects the cost of carrying the commodity for future delivery. Compare inverted market.

Contango.

The price of a futures contract tends to reflect the cost of storage, insurance, financing, and other expenses incurred by the producer as the commodity awaits delivery.

So, typically, the further in the future the maturity date, the higher the price of the contract. That relationship is described as contango.

If the opposite is true, and the price of a longer-term contract is lower than the price of one with a closer expiration date, the relationship is described as backwardation.

contango

  1. an additional payment made by an investor or speculator who has purchased or sold a SHARE, STOCK etc. on the UK STOCK MARKET in return for being permitted to carry over the settlement of the share transaction from one ACCOUNT PERIOD to the next.
  2. a condition in a FORWARD MARKET where the most distant delivery months trade at a premium to the near term delivery months.
References in periodicals archive ?
1] < 0), but if future marginal utility of a dollar is positively correlated with the expected growth rate of marginal utility, then forward premiums and the term premium in rates will be negative.
The second decomposition expressed the bond price in terms of the expected product of the prices of future short-term bonds and the product of individual forward premiums at each maturity.
Very loosely speaking, this expression relates the holding-period premium to the conditional covariance between expected future short prices and expected future forward premiums.
Most importantly, from our perspective, the model-based forward premiums that Wachter computes help to account for the empirical disparity between long-term rates and the corresponding average of expected future short-term rates--that is, the violation of the pure expectations hypothesis.
In terms of marginal utilities, using (11) and (15), the forward premium is
and it is straightforward to show that the forward premium is pinned down by the autocovariance properties of marginal utility, or equivalently by the covariance between the future short-term bond price and future marginal utility:
Note that like the forward premium, the inflation-risk premium can be positive or negative.
For the 19-month forward period, the bonds carried a relatively modest forward premium over the spot bond market.
The difference between the two is called the forward premium, and it is shaped by such factors as the level of long-term and short-term rates and the shape of the yield curve.