Bond Trader Places Largest-Ever Bet On Fed Rate Cuts In 2024 Ahead Of March Inflation Report

A bond trader has just placed a record-breaking single bet by going long on December 2024 short-term interest rate futures.

This strategy will pay off if the Federal Reserve cuts interest rates at least three times by the end of the year, a scenario that is not yet fully priced into the market following recent robust economic data and higher-than-expected inflation figures.

The Secured Overnight Financing Rate (SOFR) futures — the tool used to assess market wagers on Fed interest rates — suggest that traders are anticipating a total of 68 basis points in rate cuts by the end of the year.

What Happened: A significant transaction involving 75,000 December 2024 SOFR futures contracts through a block trade occurred shortly after 9 a.m. New York time on Tuesday, according to Bloomberg.

The CME Group verified this as the most substantial transaction for this product ever recorded, the report said. Block trades are substantial, privately negotiated transactions conducted at a single price.

The block trade for the December 2024 SOFR futures was executed at 95.320.

Chart: Bond Whale Bets Big On Fed Rate Cuts

Why It Matters: The value of these futures could significantly increase if the March consumer price index data due Wednesday morning indicates lower-than-anticipated inflation.

Such an outcome could lead to renewed expectations that the Federal Reserve will enact at least three rate cuts this year.

Additionally, the trade might have been executed to close out a short position, thereby minimizing risk in anticipation of the upcoming data release.

On the other hand, if the inflation figures are higher than expected, the possibility of witnessing higher-for-longer interest rates increases, which would further reduce market expectations for Fed rate cuts. Under such circumstances, the value of the December 2024 SOFR futures would decline.

Market Reactions: Treasury yields slightly fell Tuesday ahead of Wednesday’s inflation report. The iShares 1-3 Year Treasury Bond ETF SHY inched 0.1% higher, the iShares 7-10 Year Treasury Bond ETF IEF rose 0.4% and the iShares 20+ Treasury Bond ETF TLT rallied 0.9%.

Read now: Traders Brace For Inflation Data, June Rate Cut Hopes Hang By Thread: 10 ETFs That Could Be Volatile Wednesday

Federal Reserve illustration created using artificial intelligence via MidJourney.