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Traders Pile Into Tail-Risk Bets That Fed Won’t Hike at All

  • Open interest on tail-risk hedge has jumped 700% in past week
  • Traders also purchasing options that target negative Libor

Treasury yields are rising amid optimism over the global recovery but there has been a run on Eurodollar options betting the Federal Reserve will opt not to raise interest rates at all.

Traders this week have been busy snapping up Eurodollar call options on underlying March 2025 futures that target three-month Libor to fix below 0.5%. These pay off if markets price the Fed keeping its benchmark at its lower bound until then. Futures markets are currently anticipating Libor will rise to about 1.47% by the first quarter of 2025.