There are signs that at least one large options trader has recently bet $18 million—betting that the Federal Reserve will not cut rates this year.
Although investors in the current futures and options market generally still believe that the Federal Reserve will cut rates at the July meeting and that there will be at least two more rate cuts this year. However, in recent weeks, a massive position has been established in options contracts—profiting as long as the Federal Reserve maintains interest rates or raises them before the end of 2025.
According to data released by the Chicago Mercantile Exchange (CME) on Tuesday, this week saw a surge in new risk exposure related to this trade (i.e., the number of open contracts). This bet is linked to the secured overnight financing rate (SOFR) contract that tracks the Federal Reserve's policy path by the end of the year.
According to sources familiar with the relevant options bets, since last Thursday, one or at most a few traders have opened 80,000 contracts, betting that the SOFR rate will remain high. Due to the sensitivity of the discussion, these individuals requested anonymity.Many of these contracts are traded anonymously, making it difficult to determine the companies involved in the trades and the specific details of the transactions.
These traders indicated that in the past few weeks, the position size has grown to about 180,000 contracts, accounting for approximately 75% of the total open contracts. Based on the price at the time of building the position, such a size corresponds to an options premium of about $18 million.
Undoubtedly, this bet is in stark contrast to the current mainstream expectations in the market—as President Trump's erratic tariff policies begin to ripple through the economy, investors have been speculating about the future direction of interest rates and inflation. Many institutions on Wall Street have been increasing their bets, believing that if the economy slows due to tariffs, the Federal Reserve will have to cut rates.
The latest trades concerning December SOFR options contracts undoubtedly diminish the expectation of interest rate cuts.
Meanwhile, according to a survey by JPMorgan of its clients, investors have recently returned to the U.S. Treasury cash market after an initial sell-off triggered by Trump's tariff statements. According to the JPMorgan survey, both bullish and bearish positions in government bonds increased slightly over the past week.
U.S. Treasury yields across various maturities generally softened on Tuesday. As of the end of the New York session, the 2-year Treasury yield fell by 4.08 basis points to 3.6499%, the 5-year Treasury yield fell by 3.63 basis points to 3.7695%, the 10-year Treasury yield fell by 2.89 basis points to 4.1755%, and the 30-year Treasury yield fell by 3.04 basis points to 4.6499%.