A market condition in which the futures price of a commodity or asset trades below its current spot price, creating a downward-sloping forward curve. Backwardation typically arises when near-term demand outstrips supply or when holders of the physical asset require a convenience yield for immediate availability. Traders monitor backwardation closely as it can signal tight supply conditions and often influences roll yield for futures-based strategies.
Example
“Crude oil futures moved into backwardation, with the front-month contract trading at $82 while the six-month contract sat at $78, signaling strong near-term demand.”