What is the convenience yield associated with?

The convenience yield is a concept primarily associated with holding physical assets, particularly commodities. It represents the non-monetary benefits that accrue to a holder of a physical asset, such as the ability to meet immediate needs, seize market opportunities, or avoid disruptions in supply. Essentially, it reflects the value of having commodity inventory on hand, which can be advantageous during times of scarcity or high demand.

For instance, a firm storing oil might derive a convenience yield from the ability to sell that oil quickly in response to a sudden price spike, thus capitalizing on favorable market conditions. The yield is particularly pertinent in commodity markets, where physical possession of the commodity can provide strategic benefits compared to financial assets, where the dynamics are different and more focused on financial returns rather than the operational advantages of holding a physical asset.

This understanding is key for investors and analysts who consider how supply and demand dynamics can impact prices and profitability in commodity investments.