The Basis in Financial Markets
Chapters in this video
- 0:00 Leave tractors and warehouses at the door
- 1:02 Trey the trader: rent versus mortgage
- 2:32 Repo mechanics and the three-step carry trade
- 3:09 Positive carry and negative carry outcomes
- 4:02 Inverted yield curve knowledge check
- 5:01 Exam trap: storage next to treasury is wrong
- 5:55 Yield curve slope and carry sign table
- 6:04 Convergence in financial futures
- 7:07 Core gotchas for testing center pressure
- 8:02 Rapid-fire exam recap
What this video covers
- Why financial basis swaps silos and barges for interest rates, and how cost of carry replaces storage and freight in your mental model
- What cost of carry actually measures: the coupon income of the cash instrument minus the short-term financing rate to hold it to delivery
- How a repurchase agreement (repo) functions as the short-term borrowing mechanism that funds the position
- Why positive carry requires financing rate below yield, and why negative carry signals financing rate above yield
- How the slope of the yield curve (normal versus inverted) directly dictates the sign of carry
- Why cash and futures prices must converge by delivery even when carry is bleeding money daily
- How test writers bait agricultural basis intuition into wrong answers, and why storage or freight choices belong only to physical commodities
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 3 course also includes adaptive practice questions and spaced-repetition flashcards, free through the end of 2026.