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Traders Increase Short Positions in Federal Funds Rate Futures, Betting on July Rate Hike

AirdropBlackHole
On July 1, traders in the federal funds rate market are ramping up their bets that the Federal Reserve may start raising interest rates as early as July. This previously unimaginable move could be disrupted by a series of economic data. The probability of a rate hike at next month's policy meeting remains low, with current interest rate swaps pricing in an increase of about 9 basis points, which corresponds to a roughly 36% chance of a 25 basis point hike. Nevertheless, this probability has risen significantly; before the new Federal Reserve Chair Kevin Warsh shifted focus to price stability, the probability was nearly zero. Since the June 17 policy meeting, open interest in August federal funds rate futures—representing the size of new trading positions held by investors—has rapidly increased. The swift accumulation of new positions is predominantly leaning towards the sell side, indicating that traders are shorting the contract; if the probability of a rate hike continues to rise, such positions will benefit.
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