Traders are betting the Fed will cut rates 12 times by March
Odaily2024/06/26 00:02
By:Odaily
Odaily News Traders in the U.S. interest rate options
market are embracing an emerging bet tied to the path of the Federal Reserve’s interest rates: There will be up to 300 basis points of rate cuts in the next nine months (12 rate cuts based on the conventional 25BP range). Over the past three trading days, positions in the options market tied to the secured overnight financing rate show that these bets will benefit if the Fed cuts rates to a low of 2.25% in the first quarter of 2025. Unless the U.S. economy suddenly falls into recession, this outcome seems unlikely. This is an aggressive bet, given that the market expects the Fed to cut rates by about 75 basis points during this period. Fed officials recently predicted a rate cut of just 25 basis points by the end of this year and a total of 125 basis points by the end of 2025. Now, some are also starting to increase their bets to hedge against the consequences of tail risks, such as rapid and extreme rate cuts. (Jinshi)
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