Largest Block Trade in History! "Mystery Trader" Bets on Fed Cutting Rates by 50bps Tonight
There are signs that interest rate traders are increasing their bets, expecting the Fed to implement at least one direct 50 basis point rate cut in the remaining three policy meetings this year. Some bolder traders are even placing heavy bets that this will happen tonight...
It is reported that in the CME's federal funds futures market, a "mystery trader" is currently hedging against a super dovish surprise from the Fed's decision this week. According to researcher Ed Bolingbroke, Monday's flow activity at the front end of the curve saw the largest federal funds futures block trade in history...
Bolingbroke pointed out that the price and timing of this block trade are consistent with buyer characteristics. Given that swap markets have fully priced in a 25 basis point rate cut, this move may indicate that the mystery trader is hedging against the risk of the Fed cutting rates by 50 basis points directly on Wednesday.
CME officials confirmed on Tuesday that this is the largest block trade in the history of federal funds futures...
Federal funds futures contracts began trading on the Chicago Board of Trade in 1988 and serve as a key reference for market expectations regarding the path of the Fed's overnight benchmark rate.
In addition to CME futures contracts, trading flows related to the Secured Overnight Financing Rate (SOFR) this week also show increased demand for bets on December option contracts. These options will expire two days after the Fed's final rate decision of the year on December 10.
It is reported that these contracts will profit if the Fed implements two 50 basis point cuts or three consecutive 25 basis point cuts in the remaining three meetings (September, October, and December) this year. These trading strategies reflect a more dovish interest rate path than current swap market pricing—swap markets currently price in about 70 basis points of cumulative rate cuts before the December meeting.
