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Record Bets in CME Bonds Group Signal Anticipation of November Fed Rate Hike

Published 2023-10-05, 05:06 p/m
© Reuters Record Bets in CME Bonds Group Signal Anticipation of November Fed Rate Hike
CME
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Quiver Quantitative - The futures market is buzzing with historic wagers regarding the outcome of the Federal Reserve's November policy meeting. CME Group Inc.'s (NASDAQ:CME) federal funds futures market, a platform used to speculate on the potential shifts in the Federal Reserve's target interest rate, saw its open interest for the November contract skyrocket.

This increase, which represents a measure of both long and short contracts that traders are holding, hit an all-time high of 600,000 contracts. This translates to a staggering $25 million at stake for every basis point change in the interest rate. With a considerable chunk of this speculation leaning towards a rate increase, traders are evidently bracing for potential market upheavals.

The recent uptick in open interest seems to echo the anticipation of a rate hike by the Federal Reserve come November 1. This sentiment is being mirrored by traders opting to sell the November contract. In another related market, swap contracts tied to the Federal Reserve's meeting dates, there's approximately a 30% chance projected for a quarter-point interest rate hike. This sentiment found further fuel after an unexpected report emerged, indicating a robust job opening scenario. In a recent development, the open interest surged for a straight seventh day, marking an increase of more than 50,000. Notably, a single minute saw a sale of around 47,000 November contracts, reflecting the heightened market anticipation.

Recent remarks from prominent figures in the financial realm have played a pivotal role in steering this trend. Loretta Mester, the President of the Cleveland Fed, indicated her support for a rate increase in November, contingent on the continued robustness of the economy. Furthermore, Richard Clarida, previously the Fed's vice chair and currently donning the role of a global economic adviser at Pacific Investment Management, dropped hints suggesting that the Federal Reserve might be nearing the end of its rate-hiking journey.

In light of these developments, the market is poised at a critical juncture, with traders and investors keenly awaiting the Federal Reserve's move. With stakes as high as these, the November meeting will undoubtedly be a focal point for global financial markets.

This article was originally published on Quiver Quantitative

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