#市场重新计价加息预期 Trader bets on emergency rate hike by the Fed within two weeks, market expectations sharply reversed

According to Bloomberg, in the options market tracking Federal Reserve policies, demand for bets linked to the secured overnight financing rate (SOFR) has emerged. The logic of these trades points to a Fed rate hike within two weeks at the earliest. If the bond market significantly increases rate hike bets before the policy meeting on April 29, these positions will yield high returns. This hedging move for an emergency rate hike marks a sharp reversal in market expectations.
Just a month ago, the market still expected the Fed to cut rates by up to three times this year, with 25 basis points each. However, since the outbreak of conflict on February 28, swap market traders have priced in about a 50% chance of rate hikes before December.
As oil prices surge, raising concerns about reigniting inflation, traders have begun unwinding large long positions in US futures. Jeff Schuh, head of interest rate trading at Constitution Capital, said that the sell-off of SOFR futures and the rise in the entire Treasury yield curve caught large funds off guard. He pointed out that although the latest bets do not reflect the market’s baseline scenario, they do indicate increasing concern that rapid inflation could pose risks to investors who have been long Treasuries in recent months. Schuh described these hedging trades as a low-cost risk management tool, saying they “make the risk of liquidation seem more manageable in 90% of cases and are an inexpensive emergency measure for managing interest rate risk.”
Currently, the interest rate swap market is only pricing in a 12% probability of a 3 basis point rate hike at the April 29 policy meeting, i.e., a 25 basis point increase. However, the anomalies in the options market highlight investors’ high alert for tail risks.
The highly uncertain geopolitical environment makes it unprecedentedly difficult for traders to assess the Fed’s policy direction. The market must not only evaluate how the conflict’s trajectory affects inflation transmission but also digest policy variables brought by the upcoming leadership change at the Fed.
Kevin Warsh is set to succeed Jerome Powell as Fed Chair this summer, while Trump continues to pressure for lower interest rates. However, amid the renewed inflation risks, whether the new chair can quickly push for rate cuts remains highly uncertain. Schuh said, “Even if Warsh takes over the Fed, the uncertainty about the interest rate path and how long it will take him to build consensus or garner majority support for a rate cut is still completely unresolved.”