What Does a Negative Basis (Backwardation) Imply about the Market?

A negative basis, or backwardation, means the futures price is lower than the spot price. This implies that the market expects the spot price of the underlying asset to fall by the time the futures contract expires.

Backwardation often occurs in commodity markets when there is an immediate shortage of the asset, or in financial markets when there are high convenience yields or negative financing costs. It is generally considered a sign of a tight supply in the spot market.