According to Odaily, traders in the US interest rate options market are embracing a new emerging bet related to the trend of the Federal Reserve's interest rates. They predict that there will be a reduction of up to 300 basis points (calculated at the regular 25BP range, which is a decrease of 12 times) within the next nine months. Over the past three trading days, positions in the options market related to the secured overnight financing rate indicate that these bets will benefit if the Federal Reserve lowers the interest rate to a low of 2.25% in the first quarter of 2025.
However, such an outcome seems unlikely unless the US economy suddenly falls into recession. Considering that the market expects the Federal Reserve to cut interest rates by about 75 basis points during this period, this is an aggressive bet. Federal Reserve officials recently predicted that they would only cut interest rates by 25 basis points by the end of this year and a total of 125 basis points by the end of 2025. Now, some people are also starting to increase their bets to hedge the consequences of tail risks, such as rapid and extreme rate cuts.