Why Might the Basis Be Volatile during Periods of High Market Uncertainty?

High market uncertainty often leads to volatile basis because the two main components ▴ spot price and futures price ▴ are influenced by different factors and react at different speeds. Futures prices, which reflect forward-looking expectations, may react more dramatically to news than the spot market, especially if funding costs or risk premiums change rapidly.

Increased uncertainty also makes the cost of carry and market expectations highly unpredictable, causing the basis to fluctuate wildly.