Traders in the interest rate futures market are betting heavily on a reverse betFinnor3antireverseIf the Fed actively loosens monetary policy this year, the bet will pay off.

The bet on guaranteed overnight financing rate futures, which closely tracks the central bank's key policy rate, involves buying contracts in December 2024 and selling contracts that expire in December 2025.

It assumes that the deal will be profitable if the Fed cuts interest rates ahead of the November presidential election and is more aggressive than its previous 40 basis point cut.

The deal runs counter to the current consensus on Wall Street. In the face of a strong US economy and high inflation, this realignment of their expectations of interest rate cuts has triggeredFinnor3antireverseSent US Treasuries plummeting and pushed US two-year yields to 5 per cent at one point this week

On Tuesday, futures positions hit a record, betting that the 2024 contract would outperform the 2025 contract. Wednesday's sharp rise in positioning indicates that there are new bets, providing new momentum for trading.

According to CME, the open contract of SOFR futures in December 2025 increased by 133, 000, equivalent to a change in profit or loss of $3.3 million per basis point. On Tuesday, the 12-month yield spread broke through the 200-day moving average, which lasted for 10 months.

Sentiment in support of this year's interest rate cut also appeared in soft options this week, continuing to buy high-level call options on Wednesday, with the goal of raising the central bank's interest rate from the current 5% before the December policy meeting.Finnor3antireverse.25% to 5%Finnor3antireverseThe .5% range is reduced to 3%.

A sudden drop in US economic data could mean more aggressive easing than markets expect in the coming months. The deal may also target the possibility of a rise in inflation expectations beyond this year.