How Can the Slope of the Futures Curve Be Used to Gauge Market Sentiment?

The slope of the futures curve is a direct indicator of market sentiment. A steep, upward-sloping curve (strong contango) suggests that the market is very bullish, with a strong expectation of future price increases.

A flat or slightly upward-sloping curve (mild contango) indicates a more neutral or cautiously optimistic sentiment. A downward-sloping curve (backwardation) is a clear signal of bearish sentiment, indicating that the market expects prices to fall or that there is a high demand for the asset in the present.

The steepness of the slope in either direction can indicate the strength of the prevailing sentiment.