According to the Futu News app, as the market reassesses expectations for a Fed rate cut this year, investors are flocking to long-term bond ETFs for safe haven. This week, the iShares 20+ Year Treasury Bond ETF, owned by BlackRock, saw the largest single-day capital inflow since its inception in 2002, amounting to $2.7 billion. Despite a nearly 3% decline in the ETF so far this year, its capital inflow has accumulated to about $4.4 billion.

Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, said "Investors appear to be pushing back against the Fed's position again." He further explained that "if their predictions come true, bond prices will show significant volatility." He also mentioned that the mid-year rebalancing of portfolios may be a factor in capital inflows.

It is understood that a rate cut usually raises the price of long-term bonds because the fixed interest payments of existing bonds become more attractive after the rate cut. Meanwhile, during an economic slowdown, many seek bonds as a safe haven. Since June, an index tracking the total return on US Treasuries has risen by about 1.7%, potentially achieving the best monthly performance since 2024 and almost wiping out losses for the year.

This market trend reflects investors' concerns about economic prospects and expectations of loose monetary policy. With the continued adjustment of investor expectations for rate cuts, capital inflows to long-term bond ETFs may continue to increase and become the focus of the market.

It is worth noting that traders in the US rates options market are making bold predictions and bets on the Fed's future rate path. They expect the Fed to implement a significant rate cut in the next nine months, totaling 300 basis points. This expectation is particularly aggressive compared to the market's generally predicted cut of 75 basis points.

Over the past three trading days, option contracts linked to the Secured Overnight Financing Rate (SOFR) market have shown that if the Fed lowers the benchmark interest rate to 2.25% before Q1 of 2025, related option contracts will bring returns. This expected result means that interest rates will be lowered by at least 300 basis points from current levels and the probability of this happening is not high unless the US economy suddenly enters recession.

Although Fed officials' recent forecasts show that they expect to cut rates by only 25 basis points by the end of this year and cut rates by 125 basis points by the end of 2025, some investors have begun to prepare for larger rate cuts, including rapid and extreme rate cuts. These tail risk hedging behaviors are increasingly attracting attention in the market, but because many transactions are anonymous, it is difficult to determine the market participants behind these aggressive bets.

In the federal funds market, traders are increasing their buying power for August contracts, which will bring returns if the Fed announces a rate cut at its policy meeting on July 31. Meanwhile, the swap contracts linked to that meeting date only reflect expectations of a one basis point rate cut.

Data from JPMorgan shows that the spot market also shows a dovish tendency. The bank's latest client survey shows that net long positions reached their highest level in three months in the week ending June 24, reflecting growing market expectations for a Fed rate cut.