Bond Trader Places Record Futures Bet on Eve of Inflation Data

Bond Trader Places Record Futures Bet on Eve of Inflation Data

(Bloomberg) — A block trade in US short-term interest-rate futures Tuesday was the biggest on record and helped drive gains for the Treasury market.

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The trade involved futures on the Secured Overnight Financing Rate, the successor product to eurodollar futures, which were retired last year. Launched in May 2018, SOFR futures have taken over as the principal tool for wagers on the interest rate set by the Federal Reserve.

Shortly after 9 a.m. New York time, 75,000 December 2024 SOFR futures contract changed hands via a block trade, which CME Group Inc. confirmed was the largest in the product to date. Prices subsequently rose, suggesting the trade was buyer-initiated, and Treasury yields slid further toward session lows. Block trades are privately negotiated, single-price transactions that meet a minimum size threshold.

An outright long position in the contract stands to increase in value if March consumer price index data to be released Wednesday is benign, leading to a revival in expectations the Fed may cut rates three times this year. It’s also possible the purchase was done to cover a short position, thereby reducing risk ahead of the data.

Confidence in the inflation outlook was stoked Tuesday by State Street Global Advisors, asset manager of $3.6 trillion, predicting an aggressive half-point Fed rate cut as soon as June. Meanwhile, US President Joe Biden’s top economic aide, Lael Brainard, told CBNC she expects steady progress on inflation in the coming months.

The swaps market late Tuesday was pricing in around 65 basis points of Fed rate cuts — about two and a half 25-basis-point moves — by the end of this year. December 2024 SOFR futures were trading at a price of 95.33 as of 3 p.m., a tick higher than the block trade’s price.

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