Editing Contango (section)

== Interest rates ==
If short-term [[interest rates]] were expected to fall in a contango market, this would narrow the spread between a futures contract and an underlying asset in good supply. This is because the cost of carry will fall due to the lower interest rate, which in turn results in the difference between the price of the future and the underlying growing smaller (i.e. narrowing). An investor would be advised to buy the spread in these circumstances: this is a [[calendar spread]] trade where the trader buys the near-dated instrument and simultaneously sells the far-dated instrument (i.e. the future).<ref name="SII">{{cite book|last=Morrissey |first=Bob |title=Derivatives: The Official Learning and Reference Manual |publisher=The Securities & Investment Institute |date=January 2009 |location=London, United Kingdom |pages=72–77 |url=http://www.sii.org.uk/ |isbn=978-1-906917-11-1 |url-status=dead |archive-url=https://web.archive.org/web/20081006153135/http://www.sii.org.uk/ |archive-date=October 6, 2008 }}</ref>

If, on the other hand, the spread between a future traded on an underlying asset and the spot price of the underlying asset was set to widen, possibly due to a rise in short-term interest rates, then an investor would be advised to sell the spread (i.e. a [[calendar spread]] where the trader sells the near-dated instrument and simultaneously buys the future on the underlying).<ref name="SII" />