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Backwardation
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(1) A futures/spot market relationship in which the futures price is lower than the spot price. Agricultural commodity markets with a harvest due before the settlement date of the futures contract and energy markets during winter months will often be characterized by backwardation. In periods of backwardation, the owners of the underlying forego a riskless profit in exchange for the surety of having the commodity on hand to meet demand. John Maynard Keynes argued that backwardation was normal in speculative markets, but this position has few adherents today. See also Carrying Charge Market, Contango, Convenience Yield. (2) Crossed or inverted market: a market with the posted bid price higher than the offer. Also called Déport, Inverted Market, Locked Market. See Crossed Market.
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