Hedge funds are unleashing record bets that the U.S. Federal Reserve will stick to its hawkish script as they rapidly position for higher interest rates in a key corner of the derivatives market.
Hedge funds are unleashing record bets that the Federal Reserve will stick to its hawkish script as they rapidly position for higher interest rates in a key corner of the derivatives market.
The pace at which hedge funds have built up this short position has more than tripled in size over the past month -- even as the broader futures market continues to price in interest-rate cuts by the end of the next year. The three-year note was up 10 basis points at 3.36 per cent, its highest level since June 21, late in New York trading. The two-year rate was up 8 basis points at 3.31 per cent, after rising nearly 11 basis points to 3.34 per cent earlier in the session. The 10-year yield climbed to trade above 3 per cent for the first time in a month.
The fate of these wagers lies in the immediate path of policy rates. The swaps market is roughly pricing in a 50/50 chance that the Federal Reserve will hike by 50 or 75 basis points at its Sept. 21 decision, leaving the Jackson Hole gathering as a key event to shore up conviction one way or another.