The interest rate market is turning into a battlefield. Traders are bracing for extremes, with some believing the Fed won’t cut rates at all this year, while others expect multiple deep cuts. The main drivers: Donald Trump’s tough trade policies and growing concerns over the U.S. national debt.
📉 Fed, Inflation, and Uncertainty Ahead
While swap markets still expect two 25-basis-point rate cuts by year-end, the options market is preparing for anything from no action to a series of 50-basis-point cuts. This wide divergence stems from Trump’s tariffs on steel and aluminum, which could fuel inflation and hurt employment.
Even major banks are split:
🔹 Goldman Sachs sees no rate cuts until 2026
🔹 Citi expects cuts later this year and advises hedging for downside risk
📊 Big Bets on Derivatives and SOFR Bonds
Speculation is heating up. Open interest on "no-limits" SOFR options has reached 250,000 contracts, worth about $25 million in premiums. Traders are buying aggressive put spreads, aiming for sharp rate cuts — focusing on September and December expiries.
The most active strike price: 95.625, dominating volume for June, September, and December contracts.
📈 Hedge Funds Rally: May Gains Reach +3%
Despite the macro uncertainty, hedge funds posted strong 3% gains in May, benefiting from the weaker U.S. dollar and volatility across FX and equities. Year-to-date returns have now climbed to 5%, according to a JPMorgan Prime Brokerage report.
Breakdown by strategy:
🔹 Equity-focused funds: +3%
🔹 Multi-strategy platforms: +2.5%
Meanwhile, hedge funds reduced short exposure, and asset managers dumped over 1.2 million 10-year bond equivalents.
🪙 Crypto Markets Wild Again: Bitcoin Hits $111.9K, Ethereum Surges
Digital assets were just as volatile. Bitcoin reached a new all-time high of $111,900, before dipping back to around $105,400. Over the past 30 days, it’s still up by 12%.
Ethereum outperformed, gaining more than 44% over the past month. The leading altcoin is now trading at $2,633, with a daily volume of $15.45 billion.
Total crypto market cap peaked at $3.6 trillion, now settling around $3.33 trillion.
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