ES Futures Curve Hits Whopping 10 Point 6 Month Backwardation

Tyler Durden's picture

The ES futures curve is now at inverted term levels that have been unseen for months. For all who claim that by next summer the economy will be coasting well on its way to 3.5% growth or whatever imaginary number the crowd of lemming sell-side analysts pulls out of their pocket in their imitation of Goldman's upgrade, there sure is no actual conviction in this call. The differential between the Dec and the June ES contracts is a notable 10 points: December is at 1,246 while June is at 1,236. This is reminiscent of the curve last December, when those who bet that the market would be substantially lower half a year forward ended up being right on the money. For those who still believe in logic, a compression trade where one sells the Dec and buys the Jun contract may make sense, although with the only variable these days being what side of the bed Brian Sack wakes up on, we would be very cautious. As a reminder, the last time the VIX curve had a normal contango curve structure, was back in 2008, when the Bernanke Put was still being digested.

And here is how it looked two years ago:

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plocequ1's picture

Translation.. The Market is up. Dosent matter how, It just is.

Mr Lennon Hendrix's picture

The Bernanke put is a sure bet on constipation.

themosmitsos's picture

Yeah but they did another 950bill [taxcuts/unempl] so we're going up probably :(

New normal LOL

SheepDog-One's picture

Where did they get $950 billion from? Oh thats right, it doesnt exist.

jus_lite_reading's picture

Of course it does. You just created $950 BILLION by simply typing it. Digidollars are great. See? NINE HUNDRED BILLION DOLLARS.



Billy Shears's picture

Yes, or: $900,000,000,000.00. More Carbon friendly!

jblack010's picture

That's because the S&P will pay out $15 in dividends before the June contract expires.

Nothing more.

gkm's picture

I see where you are going with this.  You expect they will pay out $15 in half a year, even though the dividend right now is about $11 for a half year, and there will be no replenishment because earnings are going to zero.  

I'm willing to say this isn't it since retained earning at current rates should increase the SP500 by about $22, not decrease it by $10.  

If you'd said 'look at the implicit discount rate', then that would be something worth noting.

Spalding_Smailes's picture

If you missed the run in US Steel and would like to follow the lemmings ....

Olympic Steel (ZEUS) ~ year-over-year sales growth of 72% during the last quarter. Get ready for liftoff.

Its already moved from $21 -$26 in 15 days..... Or A.M. Castle & Co. (CAS)

M4570D0N's picture

Look at a 2 year chart for BEXP. That has been a fun ride. Up over 90% since May at $26.91 and up 2,300% since the March '09 bottom at $1.12.

tekhneek's picture

Does this mean we can print more money?

jus_lite_reading's picture

Do we really need any excuses to print more?

jus_lite_reading's picture

I'd venture to say, we have 1.5-2 weeks remaining on those calls.

Anyone who's been in the markets for more than 20 years knows, 1987 is coming back with a vengeance. Inkjets at full throttle or not, say good bye to Euros/Dollars/Pounds

TWORIVER's picture


RobD's picture

What the hell just happened?

RobD's picture

Nevermind just the FOMC, carry on.

SheepDog-One's picture

Nice $6 pop on gold futures.

sbenard's picture

Speaking of  S&P futures, it's showing signs of collapsing just as it did yesterday toward day's end.

Eastwood's picture

Contango / backwardation in ES futures is a poor tool for predicting asset prices. Often misunderstood by financial press as well. For physical commodity markets, the term structure is mostly based on supply / demand balance and future expectations about that balance. In financial futures markets the interest rate component(s) in the curve is by far the most significant variable.

KidDynamite's picture

to call it a "poor" tool for the ES futures would be a gross undestatement.  It's a horrendous tool. As one commenter above noted, the reason this is the situation right now is because interest rates are nil, so the carry component of the "fair value" equation, which leads futures to trade at a premium to cash, is gone.  Dividends, however, are positive, which leads futures to trade cheap to cash.  More time = more dividends = more negative fair value

Jones79's picture

using SPY as a proxy, the curve is underpricing the dividend. i.e. spy dividend as % of current price > % difference between dec and march ES, according to chart.  this could be an implied interest rate component, but i don't know too much about equity curves, am just trying to figure out. 

Jones79's picture

using SPY as a proxy, the curve is underpricing the dividend. i.e. spy dividend as % of current price > % difference between dec and march ES, according to chart.  this could be an implied interest rate component, but i don't know too much about equity curves, am just trying to figure out. 

gkm's picture

You were right the first time ;)

Now why would the market be using such an obviously high implicit interest rate?

Cdad's picture

Surprise surprise, the fake, BS, movement in the SPY is repealed entirely...and is now ready to break below yesterday's disastrous close. 

But of that the criminal syndicate known as Wall Street has dumped copious amounts of "underlying" stocks into said ETFs, now those ETFs can be shorted without mercy using freshly minted creation units that, suddenly, became available for sale into today's close.

Isn't Wall Street corruption much more enjoyable when it is jammed straight into your face with the lights on and everything?

Perp walks.  Co located computers confiscated.  NYSE officials investigated.  Flash crash criminals out of Hong Kong rounded up. Chinese IPOs repealed.  SEC clowns fired.  Ron Paul in the Feds books.  Let's go people.




Volume is not high overall on the day...but that is because so little volume appeared during upward SPY climb this morning.  By contrast, the volume on the close as it tanks is, comparatively, of liquidation quantity.  Zoom in on the one day/one will see the roaches scurrying off.....

Yellow_Paul_Frank_Monkeys's picture

Is there even any liquidity in that contract?  I wouldn't imagine so.

Hephasteus's picture

Now that is one funny graph. LOL

It's lets play gang fuck you by every economy and currency metric.

Biggus Dickus Jr.'s picture

Lots of noise and not much signal in the es futures right now, but it is worrisome that other indicators such as volume at the close was somewhat bearish.  I am still very hopeful that a lot of this now is locking in gains, but I have a hair trigger in my speculative investments.  Anyone long now like me needs to be obsessively watching volume and pricing right now.  I am still a bull, but a very scared bull.