Convenience Yield

Convenience yield refers to the non-monetary benefits of holding a physical commodity, such as oil or gold, rather than a derivative contract. It represents the value placed on the ability to access and use the commodity immediately, especially during times of shortage or high demand. The convenience yield is an important factor in determining futures prices, as it can explain why futures prices might be lower than spot prices in some markets (backwardation).

Example

A company holding physical oil during a supply disruption may benefit from having immediate access to the commodity, which can be more valuable than a futures contract.