Two large orders in the US interest rate futures market "betting" on a rate cut in July, focusing on Powell's testimony at the Senate meeting on July 9th
Two large bets have emerged in the US interest rate futures market, far from the market's expectations for the first rate cut by the Federal Reserve. This indicates that the market's expectations for a rate cut in July are increasing, but a rate cut is still a tenuous outcome. Federal Reserve Chairman Powell will testify at a Senate meeting on July 9, which could be one of the catalysts for a shift in market interest rate expectations. The contracts for these two bets will expire on August 30, capturing the policy announcement on July 31. Currently, the number of open contracts for August options has reached a historical high
According to the information obtained from the Zhitong Finance and Economics APP, in the federal funds rate futures market, there are two large bets that are far from the market's expectations for the first rate cut by the Federal Reserve, attracting attention from Wall Street. As the market's expectations for the Fed to cut rates as early as July heat up, these two bets will benefit from it. Considering that the decision on July 31 only includes a one basis point easing policy, a rate cut is still a strained outcome, but these bets highlight the momentum in the market supporting a rate cut.
Federal Reserve Chairman Powell is scheduled to testify at a Senate subcommittee meeting on July 9, which may become one of the catalysts for a shift in market interest rate expectations. The testimony will take place a week after the release of the U.S. June non-farm payrolls report and two days before the next release of the Consumer Price Index (CPI).
Traders have been searching for clues from economic data reports and policymakers' speeches, fine-tuning their views on the Fed's policy path. The market has fully digested expectations for two 25 basis point rate cuts in November and December this year. Fed officials' forecasts indicate that there will only be one rate cut in 2024.
Two Major Bets
So far, these positions have been concentrated on the August federal funds rate futures contracts, which will expire on August 30, capturing the policy announcement on July 31. These contracts are not affected by the pricing of the September meeting policy. Like many other markets, interest rate futures trading is anonymous, making it difficult to identify buyers.
As investors left their desks ahead of the U.S. June holiday, a trade on Tuesday appeared as a new risk on Thursday, with a bet of $55,000 for each basis point change, equivalent to $2.3 million. This means that if the market predicts that the policy pricing decision in July is fifty-fifty, leveraged positions could profit by around $28 million.
Last week, a similar large buyer also appeared, with a risk weight of approximately $1.25 million per basis point. Currently, the total open interest in August options has reached a historical high, far exceeding 400,000 contracts after recent bets increased significantly