convenience yield

CFA Level III
#1

i keep seeing convenience yield popping up on old exams…i know i learned this is level II but i can’t remember it anywhere in level III. Is it the same as or related to roll return? anyone care to define it?

#2

Removed from the curriculum. Convenience yield is different from roll return. It’s related to the economic benefit one derives from holding the underlying asset throughout the duration of a futures contract.

The only things we need to know about: Roll, spot, and collateral return.

#3

Convenience yield may not be calculated in the exam, but the topic is in the readings for “determinants of commodity returns”

  1. Business Cycle Sensitivity - ST expectations, Inflation hedge, supply/demand

  2. Convenience Yield - Futures different than Spot by foregone interest in purchasing and storing the commodity, storage costs, and convenience yield. Convenience yield is the opportunity cost of holding the commodity in inventory for business purposes. Inverse relationship to inventory. i.e. High convenience yield, low inventory levels

  3. Real Options under uncertainty - producer will not produce more unless spot price is > discounted future price.

#4

think of it as its relationship to the enduser/manufacturer to be convenient to have available.

#5

thanks guys

#6

Real value here