Traders in the US interest rate options market are betting on a new scenario: a 3% interest rate cut in the next 9 months. Over the past three trading days, positions in the options market associated with secured overnight financing rates show that bets that can benefit from a fall in the key interest rate to a low of 2.25% by the first quarter of 2025 will increase. This type of bet can be used to hedge against another investment. This is a very aggressive stance as market participants expect that the Fed will cut rates by only about 75 basis points during this period. Fed officials predict that interest rates will only be cut by 25 basis points by the end of this year and a total of 125 basis points by the end of 2025, so this outcome, unless the US economy suddenly enters a recession, seems unlikely to occur. Investors have been carefully studying economic data and Fed officials' speeches to find clues to the exact timing of when the Fed will ultimately ease monetary policy. Now, some are also increasing their bets to hedge against the consequences of tail risk, such as rapid and extreme interest rate cuts. Many trades in such contracts are anonymous, making it difficult to determine the companies behind these bets.In the US interest rate options market, traders are betting on a new scenario: a 3% interest rate cut in the next 9 months.

Over the past three trading days, positions in the options market associated with secured overnight financing rates show that bets that can benefit from a fall in the key interest rate to a low of 2.25% by the first quarter of 2025 will increase.

This outcome, unless the US economy suddenly enters a recession, seems unlikely to occur.The US economy has suddenly fallen into recession.This will mean that the Fed will cut rates by at least 300 basis points from the current level.

This type of bet can be used to hedge against another investment. Given that market participants expect the Fed to cut rates by only about 75 basis points during this period, this is a very aggressive stance.

Investors have been carefully studying economic data and Fed officials' speeches to find clues to the exact timing of when the Fed will ultimately ease monetary policy.Now, some are also increasing their bets to hedge against the consequences of tail risk, such as rapid and extreme interest rate cuts.Many trades in such contracts are anonymous, making it difficult to determine the companies behind these bets.

In the federal fund market, traders have been heavily buying August contracts, which will pay off if policymakers cut interest rates at the July 31 policy meeting. At the same time, forward contracts tied to the date of the meeting are only expected to reduce interest rates by one basis point.

JPMorgan's data shows that the spot market has already taken a dovish stance. The latest survey of the bank's clients shows that net long positions reached the highest level in three months as of the week ending June 24th.