These charts show what is happening. The VIX (short term ) is rising from its depressed levels in late May while VXV (90 day ) is rising at a slower rate from a deeper fall in May. Why is that important? Remember that all of these ETNs / ETFs have "roll." Roll is the daily sale of short term and purchase of mid term . Where do they get their supply of short term to sell? From holding the mid term until it becomes short term. Just about any symbol you can buy or sell employs such a strategy.
So how does that create a flattened structure? Simple. On some days that the VIX spikes a bit, those short term sales (purchased as mid term contracts weeks before, when the VXV was depressed too) are actually profitable. Normally there is loss due to theta and risk premium. But all players know that the key to winning is entering and exiting at a price move before theta and premium gets you. Well these ETFs are doing that on a few days here and there by pure luck. Most days theta and risk premium produce the deep contango that vol traders love. Do the math - as the VIX slowly rises so will the VXV , but if the VIX leads (which it is doing now) then there will be more days where those purchased-as-mid-term-and-sold-as-short-term vol contracts pay. Certainly not every day - just some days.
The structure is flattening also in part due to the of trades these ETFs / ETNs (and the array of HFT systems that arbitrage them and their underlying trades) generate. There is a "tail wagging the dog" effect that this has created that didn't exist when vol were only affected by OTM Put bidding on the S&P . More and more trades bypass OTM Puts and go straight to . The VIX itself doesn't "see" those trades (partly why it is historically low and is likely to stay low.)
The VIX/VXV ratio chart on the left shows us this "flattening" as we touch that magic .9 threshold that induces backwardation fear. I placed an indicator underneath it that shows the contango rate movement of one of the highest vol ETNs out there - my fav of favs, UVXY . The orange line is the daily contango rate. A spike above 1 generally means the contracts rolled that day were at a profit and below at a loss. The white and black lines are smoothing functions. Notice the black line rising slightly but still under 1? That means one thing: Volatility contango is intact but muted.
The VIX will bounce around day to day and should continue rising such that we see spikes into 17s once in a while again. So there will be more days where the roll is a winner. But over all it remains a loser. Just look again at that 5 year UVXY chart.