A rare opportunity is opening up in rates derivatives underlying the $31 trillion Treasury market: Division at the Federal Reserve has traders placing bets on interest-rate cuts next year while also hedging for a hike.
Wagers cropped up in the wake of this week’s Fed meeting targeting two quarter-point increases in the US by September 2027 and two new positions in protection for rate hikes in the coming months, as well as continuing demand for more than one reduction by March. It reveals that market participants are increasing the variety of bets in their playbooks after some US central bankers made clear this week that they see the potential for the Fed’s next move to be a hike.
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