Roll yield: contango and backwardation
What a futures product gains or loses each time it replaces an expiring contract with the next one: it comes from the gap between the two contract prices, not from the commodity's own price.
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Where it misleads
The gap used in the example is a unit of arithmetic, not a measurement: the real gap sits on the futures curve, differs by commodity and by contract month, and changes from one replacement to the next. Contango and backwardation describe the shape of that curve on one day; they say nothing about which way prices will go, and nothing here is a forecast of what replacing contracts will cost or add. A physical product holds no contracts, so it has no roll at all.
Compared with
- Physical metal or futures — what a commodity product holds, which decides whether it rolls at all
- Commodity pool — a futures product whose contracts are not in the SEC data we use
- Sensitivity to priced-in inflation — a measured move against inflation priced in, not a roll
How it is computed here
This page does not read the futures curve, so it does not measure roll yield; it shows the mechanism on the fund's own exposure. A futures fund reports in its Form N-PORT the notional amount of its contracts over its net assets. Each time the contracts are replaced, a gap of 1% between the old price and the new one is 1% of that notional amount, so the effect on the fund is its notional share times the gap. A next contract priced above the expiring one (contango) costs that; priced below (backwardation), it adds it.
Worked example
- A futures fund's Form N-PORT shows its contracts control 102% of its net assets: N = 1.02.
- Each time a contract nears its expiry the fund sells it and buys the next one. If the next costs 1% more than the one sold (contango), that is 1% of the contracts' value: 102% × 1% = 1.02% of the fund's value.
- As the formula has it: − N × g = − 1.02 × 1% = −1.02% of the fund at that replacement
- If the next contract costs 1% less (backwardation), the same arithmetic is a gain of 1.02%. The 1% is a unit for the arithmetic, not a measurement: the real gap is on the futures curve, which this page does not read.
Illustrative, round numbers: not a real fund, market or portfolio. Signed in with a holding of this kind, this lesson is worked on yours.
Where it misleads
The gap used in the example is a unit of arithmetic, not a measurement: the real gap sits on the futures curve, differs by commodity and by contract month, and changes from one replacement to the next. Contango and backwardation describe the shape of that curve on one day; they say nothing about which way prices will go, and nothing here is a forecast of what replacing contracts will cost or add. A physical product holds no contracts, so it has no roll at all.
What happens when a contract expires
A futures contract has an end date. A fund that wants to keep its exposure sells the contract near that date and buys the next one, again and again. That is the roll. It is not an extra charge: it is the gap between two prices, the old contract's and the new one's.
Contango and backwardation
- Contango: the next contract is priced above the one expiring. Replacing it means buying dearer than the fund sold, which costs it.
- Backwardation: the next contract is priced below the expiring one. Replacing it adds to the fund.
The words describe the shape of futures prices on one day. They say nothing about which way the commodity's own price goes.
The arithmetic
- N — the notional amount of the fund's contracts divided by its net assets (from its Form N-PORT);
- Pold — the price of the expiring contract it sells;
- Pnew — the price of the next contract it buys;
- g — the gap between them as a share of the old price: positive in contango, negative in backwardation.
A worked example on a real fund
PDBC's Form N-PORT for 31 July 2026 (read from the SEC's public data on 2 October 2026) gives N = 1.11. If the next contract costs 1% more than the one sold (g = +1%), replacing the whole book is −1.11 × 1% = −1.11% of the fund's value. If it costs 1% less (g = −1%), it is +1.11%. The 1% is a unit for the arithmetic, not a measurement: the real gap is on the futures curve and differs by commodity and by contract month.
What this page does not do
It does not read the futures curve, so it does not measure the roll of any fund, and it does not say what replacing contracts will cost or add. It shows the mechanism, on the exposure a fund actually reports.
Compared with
- Physical metal or futures — what a commodity product holds, which decides whether it rolls at all
- Commodity pool — a futures product whose contracts are not in the SEC data we use
- Sensitivity to priced-in inflation — a measured move against inflation priced in, not a roll
Questions people ask
Is roll yield why a futures fund differs from the commodity's price?
It is one of the reasons. Fees and the return on the cash held against the contracts are others. This page does not read the futures curve, so it cannot say how much of a given fund's gap is the roll.
Does contango mean prices will fall?
No. Contango and backwardation describe how the futures prices of different months sit against each other on one day. They say nothing about the direction of the commodity's price.
Does a physical gold product roll?
No. It holds no contracts, so there is nothing to expire and replace.
Sources
- SEC EDGAR: Form N-PORT filings (public data)
Last reviewed 2 Oct 2026 by Sphinx Risk.