In CYB, the premium it pays is because traders believe the Chinese currency will appreciate. (Read our special report on currencies). Already this year, CYB is up 1.8% this year – more than the 1% the currency itself has gained.
Commodity investors can alleviate contango by buying a 2010 futures contract, but currency traders can’t get around the premium for the yuan. (What’s contango?)
Other factors in this issue include:
- Speculative demand. If traders believe a currency will gain, they’ll bid up forward contracts.
- Storage issues. Higher futures prices are based on the costs of storage; currencies don’t need storage, so this issue is moot for them.
For more stories on currency ETFs, visit out currency ETF category.
For full disclosure, Tom Lydon’s clients own shares of UNG.
Kevin Grewal contributed to this article.