A few hours before the US Consumer Price Index (CPI) was announced on Wednesday (April 10), there were record bullish bets on interest rate futures, which meant that the market was strongly pricing dovish interest rate cuts. Unexpectedly, the US CPI overheated hit the dovish, causing position losses amounting to 50 million US dollars. CME data shows that the bet is on a new position rather than a position replenishment.
Bloomberg reports that a single transaction involving futures linked to the benchmark guarantee overnight financing rate will benefit from more moderate readings, which will support the reasons for the Federal Reserve to cut interest rates this year.
In contrast, the CPI data became overheated, causing US Treasury yields to soar and prompting investors to lower expectations of interest rate cuts.
According to the price trend of futures traded in December 2024, the position lost approximately $50 million.
At a time when US Treasury positions are increasingly bearish, bullish bets are particularly prominent as investors adjust for long-term interest rate increases.
After the release of Wednesday's report, traders' expectations for the first full 25 basis point rate cut this year changed from September to November. Currently, the market expects less than two 25 basis points of interest rate cuts for the whole of 2024.
It's unclear which trader actually placed the record futures bet, and it's impossible to know if it went along with other bets.
However, the scale of the bulk transaction, which is equivalent to the profit or loss of nearly 2 million US dollars per base point of change in the underlying interest rate, indicates that it is intended to offset a single underlying position and may be a bearish position.
Separate data released by CME on Wednesday indicated that the deal was a new bet or hedge rather than a short return on existing positions.
This deal isn't the only forecast that was overturned after Wednesday's CPI data was released.
State Street Global Advisors (State Street Global Advisors) predicted on Tuesday that interest rates will be cut immediately by 50 basis points at the June meeting, but currently swap pricing only reflects that the FOMC meeting will cut interest rates by 3 basis points, which is equivalent to a mere 12% chance of cutting interest rates by 25 basis points.
Well-known financial blogger ZeroHedge commented: “If State Street Bank had invested in this deal, now everything is gone.”
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