In what market condition does negative roll yield occur?

Negative roll yield occurs in a contango market. In this situation, futures prices for delivery at future dates are higher than the spot price. When a trader holds a long position in futures contracts, they face the challenge of rolling over those contracts as they near expiration. If they sell the expiring contract and buy a new contract for a later expiration date, they will have to sell at a lower price (the spot price) and buy at a higher price (the futures price), resulting in a loss. This loss from the roll-over process is referred to as a negative roll yield.

Understanding contango is essential for investors and traders in managing their expectations and assessing the costs associated with maintaining long positions in futures markets. In contrast, other market conditions like backwardation, where futures prices are lower than the spot price, do not experience negative roll yield, as they can yield positive returns when contracts are rolled over.